Fixed or floating exchange rates?

[Cassius]

Whilst fixed rates can seem superficially attractive, in practice they’re extremely difficult to maintain. It’s instructive to read up on Britain’s economic history in the 20th century, as an example, and see just how much blood, sweat and tears went into trying to fix the pound at one rate or another (whether that was on the Gold Standard, Bretton Woods, or the ERM), something that ultimately proved to be futile.

[Cassius]

My understanding of the ERM debacle was that there was a rather political motivation to it - inflation was still relatively high in the late 80s and so high interest rates could be framed as a political necessity to maintain our place in the ERM as opposed to a strategy for containing inflation (thus outsourcing the blame for this from the government and to ‘Europe’).

I’d also query Howe’s assertion about the stability of Bretton Woods - once the world was awash with dollars again, the system as a whole was virtually impossible for the Americans to maintain, which was why Nixon jacked it in in 1971. Meanwhile, our own government’s efforts to prevent the pound from becoming over or undervalued is what led to the ‘stop-go’ policies of the postwar period, which weren’t particularly conducive to stability or long term economic growth.