please explain me the meaning of the paragraph on bretton woods system???
what is meant by the value of currency is lower/higher as compared to value of USD???
explain using Numerical examples
if the value of USD goes up then will the value of all currencies pegged to USD will also go up???
Dear student,
Under the Bretton Woods system the monetary authority maintained a fixed exchange rate between their currency and the USD. The exchange rate was maintained by intervening in the foreign exchange market as and when required.
The line "the value of currency falls below the USD" means that the value of currency falls below the level that is fixed then the monetary authority. In such a case the monetary authority would buy its own currency such that the exchange rate is brought back to the fixed level. On the other hand, if the value of currency is greater than that fixed then monetary authority would sell its own currency.
Under the Bretton Woods system the monetary authority maintained a fixed exchange rate between their currency and the USD. The exchange rate was maintained by intervening in the foreign exchange market as and when required.
The line "the value of currency falls below the USD" means that the value of currency falls below the level that is fixed then the monetary authority. In such a case the monetary authority would buy its own currency such that the exchange rate is brought back to the fixed level. On the other hand, if the value of currency is greater than that fixed then monetary authority would sell its own currency.