Exchange Rate & External Account Management

As Master of the Mint, Newton fixed the price of gold in terms of silver coin at a level that drew silver out of circulation, unintentionally putting Britain on a de facto gold standard for the next two centuries.

France, Belgium, Italy, Switzerland and later Greece agreed common gold and silver content for their coins, an early attempt at monetary integration that prefigured the fixed-rate and single-currency arrangements of the following century.

From the end of the Second World War until 1967, Western European states pegged their currencies to the US dollar under the Bretton Woods system. This institutionalised exchange rate stability across the industrial world for two decades.

On 15 August 1971 President Nixon announced the measures remembered as the Nixon Shock, suspending the dollar's convertibility into gold. This forced major currencies off their fixed parities within two years, ending the dollar-based fixed exchange rate arrangement and replacing nearly three decades of pegged rates with the floating exchange rate system most large economies use today.

From the early 1980s to 2006 market convention quoted most currency pairs to four decimal places for spot transactions and up to six for forwards and swaps. Currencies valued below 1.000 were quoted to five or six places, and those over 5000 with none.

From the 1980s economists tried to overcome the limitations of existing approaches to measuring equilibrium real exchange rates. This research programme underpinned later tools for judging currency misalignment.

Finance ministers from the United States, Japan, West Germany, France and the UK agreed to jointly intervene to weaken an overvalued dollar, a rare instance of coordinated management of major exchange rates by design rather than crisis.

UIRP showed no proof of working after the 1990s. The breakdown weakened a core theoretical tool for predicting exchange rate movements.

The Convertibility Plan tied every peso in circulation to a dollar held in reserve, ending hyperinflation almost overnight and winning a decade of price stability before the rigid peg's underlying imbalances brought the system down.

Speculative selling overwhelmed the Bank of England's attempt to defend sterling's ERM band despite emergency rate rises, a humiliation that discredited fixed exchange rate pegs among currency speculators for a generation.

Fourteen African states in the franc zone accepted a 50 per cent devaluation, the first since the currency's creation, restoring export competitiveness at the cost of a sharp jump in the price of imported goods.

In 1994 China merged its official and market exchange rates at a single, more competitive level, ending years of a distorted two-tier system, and pegged the yuan renminbi to the US dollar at RMB 8.2768 to $1, a rate held until 2005. The peg is a leading modern example of a state maintaining exchange rate stability by administrative fixing and set the stage for the tightly managed currency regime China has maintained in various forms ever since.

Williamson set out the FEER approach to estimating an equilibrium real exchange rate. It became one of the two most popular frameworks for assessing whether a currency is misaligned.

Thailand's decision to float the baht after months of speculative attack triggered contagion into Indonesia, South Korea and Malaysia, wiping out years of pegged-rate stability and forcing IMF-led rescue programmes across the region.

Clark and MacDonald produced the initial estimation of the BEER measure of equilibrium exchange rates. Alongside FEER it is a standard method for diagnosing over- or undervaluation.

Years of an overvalued fixed rate, capital flight and recession forced Argentina to abandon convertibility, default on its debt and devalue sharply, wiping out savings and triggering the worst economic crisis in the country's modern history.

The currency began depreciating again against the dollar and euro even after the central bank had held its policy rate at 50 per cent for much of the previous two years, underlining the limits of monetary tightening alone.

The peso touched the top of its 1,000-to-1,400 range just six months after the band took effect, prompting the first coordinated dollar sales under the new regime and raising doubts about whether a band without capital controls could hold under pressure.

The official exchange rate stood at around 1,537 to the dollar against a parallel-market rate of roughly 1,545 to 1,550, a gap of under 1 per cent marking a striking narrowing after years of a wide and disruptive divergence.

The government ended years of strict capital controls and allowed the official peso to trade freely between 1,000 and 1,400 per dollar, part of a new IMF-backed programme; the official and black-market rates converged almost immediately.

Markets sold the lira sharply after Ekrem İmamoğlu, President Erdoğan's leading political rival, was detained, a reminder that political shocks could still overwhelm years of high interest rates aimed at restoring currency stability.

The monthly devaluation built into the exchange rate mechanism was cut from 2 per cent to 1 per cent, a signal that policymakers judged the currency's scheduled slide had begun to outpace the underlying fall in inflation.

Officials repeated warnings against rapid, one-sided yen moves as the currency periodically weakened past 150 to the dollar, keeping alive the possibility of the kind of dollar-selling intervention used in previous bouts of pressure.

The People's Bank of China continued setting a daily reference rate that limited the currency's movement even as trade tensions with the United States and a weaker property sector added pressure toward capital outflows, prioritising stability over a market-set rate.

Having recovered sharply after a 2024 Eurobond buyback eased default fears, the shilling traded far more calmly through the following year than in the preceding crisis period, a rare case of an African currency stabilising rather than sliding.

The currency held broadly around the level it reached after the central bank abandoned its dollar peg and let the pound float, a sharp change from the fixed rate of about 16 to the dollar maintained between 2018 and 2021.

Argentina reimposed limits on dollar purchases in September 2019. The reversal illustrates recurring reliance on administrative controls to defend a currency's value.

As of 2016 retail foreign exchange trading was reported at 5.5% of the whole market, some $282 billion in daily turnover. The figure marks the scale reached by non-institutional participation in currency markets.

Macri promised to remove the exchange restrictions imposed by the preceding government, including capital controls used to manage instability. The pledge made exchange rate policy an explicit electoral issue.

Argentina's government limited the ability to buy US dollars, a capital control intended to manage economic instability. The measure fuelled a black market in dollar purchases.

Barclays Capital began quoting spot exchange rates with five or six decimal places on its electronic dealing platform. This departed from the long-standing four-decimal market convention for spot quotation.