US monetary policy spillovers on emerging market economies

Abstract

Global monetary policy has evolved drastically over the last century. At the start of the 201 h century, the global monetary system relied on gold as the de-facto standard. While the post- world-war I period was marked by a flurry of experiments in various countries, including the introduction of pure paper currency in Germany (which ended in hyperinflation in the early 1920s) and attempts to return to the pre-worldwar I system (say, in Britain), the next solution with wide consensus was devised at Bretton Woods. At Bretton Woods, global powers agreed to a system of fixed exchange rates wherein each currency's value was fixed in terms of US dollars, and the US dollars value in turn was fixed in terms of gold.; This system established the dominance of the US dollar in global trade and as a reserve currency. However, the Bretton Woods system soon started facing headwinds when in 1960s when the circulation of US dollars globally outstripped US gold reserves, leading to fears of a run on US gold reserves. This led to US president Nixon's 1971 decision to suspend US dollar - gold convertibility. Despite efforts by leading powers to restore the Bretton Woods system, by 1973, a system of floating exchange rates was in place.