Is It True That The Rise And Fall In Dollar Also An International Economic Issue At Century’s End?

We have reviewed the rapid evolution of the international monetary system governing foreign exchange rates over the last half century. It shows the average exchange value of the dollar against major currencies. The dollar's exchange rate was quite stable until the Breton Woods system broke down in 1971. The dollar then depreciated sharply from 1971 to 1980.

The decade of the 1980s witnessed a dramatic cycle of dollar rise and fall appreciation and depreciation. The rise of the dollar began in 1980 after a tight monetary policy and loose fiscal policy in the United States drove interest rates up sharply. This period witnessed high dollar interest rates, a conservative administration in the United States a cut in U.S tax rates, economic difficulties in continental Europe, socialism in France and political unrest and debt crisis in many Latin America countries. All these forces combined to attract mobile funds from other currencies to U.S dollars.

From 1979 to early 1985, the exchange rate on the dollar rose 80 percent. Many economists and policymakers became convinced that the dollar was overhauled by 1985, and a swift decline soon followed.

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