A central bank, reserve bank, or monetary authority is the institution that manages the currency, money supply, interest rates of a state or formal monetary union, oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, generally controls the printing/coining of the national currency, which serves as the state's legal tender. A central bank acts as a lender of last resort to the banking sector during times of financial crisis. Most central banks have supervisory and regulatory powers to ensure the solvency of member institutions, to prevent bank runs, to discourage reckless or fraudulent behavior by member banks. Central banks in most developed nations are institutionally independent from political interference. Still, limited control by the executive and legislative bodies exists. Functions of a central bank may include: implementing monetary policies. Setting the official interest rate – used to manage both inflation and the country's exchange rate – and ensuring that this rate takes effect via a variety of policy mechanisms controlling the nation's entire money supply the Government's banker and the bankers' bank managing the country's foreign exchange and gold reserves and the Government bonds regulating and supervising the banking industry Central banks implement a country's chosen monetary policy.
At the most basic level, monetary policy involves establishing what form of currency the country may have, whether a fiat currency, gold-backed currency, currency board or a currency union. When a country has its own national currency, this involves the issue of some form of standardized currency, a form of promissory note: a promise to exchange the note for "money" under certain circumstances; this was a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are fiat money, the "promise to pay" consists of the promise to accept that currency to pay for taxes. A central bank may use another country's currency either directly in a currency union, or indirectly on a currency board. In the latter case, exemplified by the Bulgarian National Bank, Hong Kong and Latvia, the local currency is backed at a fixed rate by the central bank's holdings of a foreign currency. Similar to commercial banks, central banks incur liabilities. Central banks create money by issuing interest-free currency notes and selling them to the public in exchange for interest-bearing assets such as government bonds.
When a central bank wishes to purchase more bonds than their respective national governments make available, they may purchase private bonds or assets denominated in foreign currencies. The European Central Bank remits its interest income to the central banks of the member countries of the European Union; the US Federal Reserve remits all its profits to the U. S. Treasury; this income, derived from the power to issue currency, is referred to as seigniorage, belongs to the national government. The state-sanctioned power to create currency is called the Right of Issuance. Throughout history there have been disagreements over this power, since whoever controls the creation of currency controls the seigniorage income; the expression "monetary policy" may refer more narrowly to the interest-rate targets and other active measures undertaken by the monetary authority. Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. Unemployment beyond frictional unemployment is classified as unintended unemployment.
For example, structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Macroeconomic policy aims to reduce unintended unemployment. Keynes labeled any jobs that would be created by a rise in wage-goods as involuntary unemployment: Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.—John Maynard Keynes, The General Theory of Employment and Money p11 Inflation is defined either as the devaluation of a currency or equivalently the rise of prices relative to a currency. Since inflation lowers real wages, Keynesians view inflation as the solution to involuntary unemployment. However, "unanticipated" inflation leads to lender losses as the real interest rate will be lower than expected.
Thus, Keynesian monetary policy aims for a steady rate of inflation. A publication from the Austrian School, The Case Against the Fed, argues that the efforts of the central banks to control inflation have been counterproductive. Economic growth can be enhanced by investment such as more or better machinery. A low interest rate implies that firms can borrow money to invest in their capital stock and pay less interest for it. Lowering the interest is therefore considered to encourage economic growth and is used to alleviate times of low economic growth. On the other hand, raising the interest rate is used in times of high economic growth as a contra-cyclical device to keep the economy from overheating and avoid market bubbles. Further goals of monetary policy are stability of interest rates, of the financial market, of the foreign exchange market. Goals cannot be separated fr
Kingdom of England
The Kingdom of England was a sovereign state on the island of Great Britain from 927, when it emerged from various Anglo-Saxon kingdoms until 1707, when it united with Scotland to form the Kingdom of Great Britain. In 927, the Anglo-Saxon kingdoms were united by Æthelstan. In 1016, the kingdom became part of the North Sea Empire of Cnut the Great, a personal union between England and Norway; the Norman conquest of England in 1066 led to the transfer of the English capital city and chief royal residence from the Anglo-Saxon one at Winchester to Westminster, the City of London established itself as England's largest and principal commercial centre. Histories of the kingdom of England from the Norman conquest of 1066 conventionally distinguish periods named after successive ruling dynasties: Norman 1066–1154, Plantagenet 1154–1485, Tudor 1485–1603 and Stuart 1603–1714. Dynastically, all English monarchs after 1066 claim descent from the Normans; the completion of the conquest of Wales by Edward I in 1284 put Wales under the control of the English crown.
Edward III transformed the Kingdom of England into one of the most formidable military powers in Europe. From the 1340s the kings of England laid claim to the crown of France, but after the Hundred Years' War and the outbreak of the Wars of the Roses in 1455, the English were no longer in any position to pursue their French claims and lost all their land on the continent, except for Calais. After the turmoils of the Wars of the Roses, the Tudor dynasty ruled during the English Renaissance and again extended English monarchical power beyond England proper, achieving the full union of England and the Principality of Wales in 1542. Henry VIII oversaw the English Reformation, his daughter Elizabeth I the Elizabethan Religious Settlement, meanwhile establishing England as a great power and laying the foundations of the British Empire by claiming possessions in the New World. From the accession of James VI and I in 1603, the Stuart dynasty ruled England in personal union with Scotland and Ireland.
Under the Stuarts, the kingdom plunged into civil war, which culminated in the execution of Charles I in 1649. The monarchy returned in 1660, but the Civil War had established the precedent that an English monarch cannot govern without the consent of Parliament; this concept became established as part of the Glorious Revolution of 1688. From this time the kingdom of England, as well as its successor state the United Kingdom, functioned in effect as a constitutional monarchy. On 1 May 1707, under the terms of the Acts of Union 1707, the kingdoms of England and Scotland united to form the Kingdom of Great Britain; the Anglo-Saxons referred to themselves as the Engle or the Angelcynn names of the Angles. They called their land Engla land, meaning "land of the English", by Æthelweard Latinized Anglia, from an original Anglia vetus, the purported homeland of the Angles; the name Engla land became England by haplology during the Middle English period. The Latin name was Anglorum terra, the Old French and Anglo-Norman one Angleterre.
By the 14th century, England was used in reference to the entire island of Great Britain. The standard title for monarchs from Æthelstan until John was Rex Anglorum. Canute the Great, a Dane, was the first to call himself "King of England". In the Norman period Rex Anglorum remained standard, with occasional use of Rex Anglie. From John's reign onwards all other titles were eschewed in favour of Regina Anglie. In 1604 James I, who had inherited the English throne the previous year, adopted the title King of Great Britain; the English and Scottish parliaments, did not recognise this title until the Acts of Union of 1707. The kingdom of England emerged from the gradual unification of the early medieval Anglo-Saxon kingdoms known as the Heptarchy: East Anglia, Northumbria, Essex and Wessex; the Viking invasions of the 9th century upset the balance of power between the English kingdoms, native Anglo-Saxon life in general. The English lands were unified in the 10th century in a reconquest completed by King Æthelstan in 927 CE.
During the Heptarchy, the most powerful king among the Anglo-Saxon kingdoms might become acknowledged as Bretwalda, a high king over the other kings. The decline of Mercia allowed Wessex to become more powerful, it absorbed the kingdoms of Kent and Sussex in 825. The kings of Wessex became dominant over the other kingdoms of England during the 9th century. In 827, Northumbria submitted to Egbert of Wessex at Dore making Egbert the first king to reign over a united England. In 886, Alfred the Great retook London, which he regarded as a turning point in his reign; the Anglo-Saxon Chronicle says that "all of the English people not subject to the Danes submitted themselves to King Alfred." Asser added that "Alfred, king of the Anglo-Saxons, restored the city of London splendidly... and made it habitable once more." Alfred's "restoration"
John, King of England
John known as John Lackland, was King of England from 1199 until his death in 1216. John lost the Duchy of Normandy and most of his other French lands to King Philip II of France, resulting in the collapse of the Angevin Empire and contributing to the subsequent growth in power of the French Capetian dynasty during the 13th century; the baronial revolt at the end of John's reign led to the sealing of Magna Carta, a document sometimes considered an early step in the evolution of the constitution of the United Kingdom. John, the youngest of five sons of King Henry II of England and Duchess Eleanor of Aquitaine, was at first not expected to inherit significant lands. Following the failed rebellion of his elder brothers between 1173 and 1174, John became Henry's favourite child, he was given lands in England and on the continent. John's elder brothers William and Geoffrey died young. John unsuccessfully attempted a rebellion against Richard's royal administrators whilst his brother was participating in the Third Crusade.
Despite this, after Richard died in 1199, John was proclaimed King of England, came to an agreement with Philip II of France to recognise John's possession of the continental Angevin lands at the peace treaty of Le Goulet in 1200. When war with France broke out again in 1202, John achieved early victories, but shortages of military resources and his treatment of Norman and Anjou nobles resulted in the collapse of his empire in northern France in 1204. John spent much of the next decade attempting to regain these lands, raising huge revenues, reforming his armed forces and rebuilding continental alliances. John's judicial reforms had a lasting effect on the English common law system, as well as providing an additional source of revenue. An argument with Pope Innocent III led to John's excommunication in 1209, a dispute settled by the king in 1213. John's attempt to defeat Philip in 1214 failed due to the French victory over John's allies at the battle of Bouvines; when he returned to England, John faced a rebellion by many of his barons, who were unhappy with his fiscal policies and his treatment of many of England's most powerful nobles.
Although both John and the barons agreed to the Magna Carta peace treaty in 1215, neither side complied with its conditions. Civil war broke out shortly afterwards, with the barons aided by Louis of France, it soon descended into a stalemate. John died of dysentery contracted whilst on campaign in eastern England during late 1216. Contemporary chroniclers were critical of John's performance as king, his reign has since been the subject of significant debate and periodic revision by historians from the 16th century onwards. Historian Jim Bradbury has summarised the current historical opinion of John's positive qualities, observing that John is today considered a "hard-working administrator, an able man, an able general". Nonetheless, modern historians agree that he had many faults as king, including what historian Ralph Turner describes as "distasteful dangerous personality traits", such as pettiness and cruelty; these negative qualities provided extensive material for fiction writers in the Victorian era, John remains a recurring character within Western popular culture as a villain in films and stories depicting the Robin Hood legends.
John was born to Henry II of England and Eleanor of Aquitaine on 24 December 1166. Henry had inherited significant territories along the Atlantic seaboard—Anjou and England—and expanded his empire by conquering Brittany. Henry married the powerful Eleanor of Aquitaine, who reigned over the Duchy of Aquitaine and had a tenuous claim to Toulouse and Auvergne in southern France, in addition to being the former wife of Louis VII of France; the result was the Angevin Empire, named after Henry's paternal title as Count of Anjou and, more its seat in Angers. The Empire, was inherently fragile: although all the lands owed allegiance to Henry, the disparate parts each had their own histories and governance structures; as one moved south through Anjou and Aquitaine, the extent of Henry's power in the provinces diminished scarcely resembling the modern concept of an empire at all. Some of the traditional ties between parts of the empire such as Normandy and England were dissolving over time, it was unclear.
Although the custom of primogeniture, under which an eldest son would inherit all his father's lands, was becoming more widespread across Europe, it was less popular amongst the Norman kings of England. Most believed that Henry would divide the empire, giving each son a substantial portion, hoping that his children would continue to work together as allies after his death. To complicate matters, much of the Angevin empire was held by Henry only as a vassal of the King of France of the rival line of the House of Capet. Henry had allied himself with the Holy Roman Emperor against France, making the feudal relationship more challenging. Shortly after his birth, John was passed from Eleanor into the care of a wet nurse, a traditional practice for medieval noble families. Eleanor left for Poitiers, the capital of Aquitaine, sent John and his sister Joan north to Fontevrault Abbey; this may have been done with the aim of steering her youngest son, with no obvious inheritance, towards a future ecclesiastical career.
Eleanor spent the next few years conspiring against her husband Henry and neither parent played a
Coins of the Republic of Ireland
There have been three sets of coins in Ireland since independence. In all three, the coin showed a Celtic harp on the obverse; the pre-decimal coins of the Irish pound had realistic animals on the reverse. The pre-decimal and original decimal coins were of the same dimensions as the same-denomination British coins, as the Irish pound was in currency union with the British pound sterling. British coins were accepted in Ireland, conversely to a lesser extent. In 1979 Ireland joined the Irish pound left parity with sterling; the first coins minted in Ireland were produced in about 995 AD in Dublin for King Sitric, the Hiberno-Norse King of Dublin. These penny coins bore the name of the king and the word Dyflin for Dublin. John of England was among the first Anglo-Norman monarchs to mint coins in Ireland, it was not until the reign of Henry VIII that Irish coins bore the harp and in Henry's reign, the year. In the following centuries gold and copper coins were issued, at one time, metal from melted-down gun barrels was used.
Coins issued in the 18th and 19th centuries included the word Hibernia on the harp side. The last Irish coins issued prior to independence were during the reign of George IV, in 1823. Irish coins were withdrawn in 1826 following the full political union of Ireland and Britain in the 1800 Act of Union. Occasional "fantasy" coins were minted in the next century but these were neither circulated nor legal tender; the Irish Free State decided soon after its foundation in the 1920s to design its own coins and banknotes. It was decided; the Coinage Act, 1926 was passed as a legislative basis for the minting of coins for the state and these new coins commenced circulation on 12 December 1928. The decision was for economic reasons because, in 1924, 98% of Irish exports went to Great Britain and Northern Ireland, while 80% of imports were from those territories. Additionally, the stability and backing of the pound sterling reassured the government that the new currency was on a firm foundation and did not weaken efforts to rebuild the country and economically, the government's first commitment.
As is common with numismatic terminology the side of the seal of the state is termed the "obverse". Coins are issued by the central bank. In the early 1920s, the Irish government created a committee headed by Senator W. B. Yeats to determine designs suitable for the coins; the committee members were Dermot O'Brien, Lucius O'Callaghan and Barry Egan. Some decisions were made at the outset; the harp was to be on most if not all coins, all lettering would be in Irish. The committee decided that people associated with "the present time" should not feature in any designs, no doubt due to the political divisions which had led to the Irish Civil War, they decided that religious or cultural themes should be avoided in case coins became relics or medals. Agriculture was essential to the economy of Ireland and this theme was chosen for the coins, which used designs featuring animals and birds; the harp and the words Saorstát Éireann were chosen for the obverse side of coins. Images of animals and birds were presented to the chosen artists to design the reverse and they were given pictures of the Galway harp and Trinity College harp for guidance.
The Minister for Finance decided that the value of the coins should be written in numerals as well as in words, he suggested using plants. Three Irish artists Jerome Connor, Albert Power and Oliver Sheppard were chosen, the foreign artists Paul Manship, Percy Metcalfe Carl Milles and Publio Morbiducci; each artist was paid and allowed to produce designs in plaster or metal, with a prize for the winner. Identifying marks were removed from the designs so the committee did not know whose designs were being judged. Percy Metcalfe's designs were chosen and design modifications were added with assistance from civil servants at the Department of Agriculture; the first coins were minted at the Royal Mint in London. In 1938, following the introduction of the Constitution of Ireland, the obverse of the coins was modified with the Irish language name of the State, "Éire", the harp was modified so that it wore better; the Central Bank Act, 1942 Section 58 allowed pure nickel to be substituted with a cupro-nickel alloy.
The description of the state as the "Republic of Ireland" did not require any change in the name on coins issued after 1948. The Coinage Act, 1950 changed the law on coinage principally with the removal of silver from coins in existence; the final piece of primary legislation for predecimal coins was the Coinage Act, 1966 which allowed for a ten shilling coin to be minted and circulated. The ten shilling was the only modern circulating Irish coin not to feature the harp, to incorporate edge lettering, to depict an actual Irishman, to depict a political subject (Pearse was an Irish revolutionary and the edge lettering referred to the 19
Gun money was an issue of coins made by the forces of James II during the Williamite War in Ireland between 1689 and 1691. They were minted in base metal, were designed to be redeemed for silver coins following a victory by James II and bore the date in months to allow a gradual replacement; as James lost the war, that replacement never took place, although the coins were allowed to circulate at much reduced values before the copper coinage was resumed. They were withdrawn from circulation in the early 18th century; the name "gun money" stems from the idea. However, many other brass objects, such as church bells, were used. There were two issues; the first "large" issue consisted of sixpences and half crowns. The second, "small" issue consisted of shillings and crowns; some of the second issue were overstruck on large issue pieces, with shillings struck over sixpences, half crowns on shillings and crowns on half crowns. The most notable feature of the coins is the date, because the month of striking was included.
This was so that after the war, soldiers would be able to claim interest on their wages, withheld from proper payment for so long. Specimen strikings were produced in silver and gold for most months, these tend to be rare. Pewter money is a rarer type of gun money, manufactured out of Pewter, an alloy containing tin, smaller amounts of copper, antimony and lead; some of the coins had a brass plug. Halfcrowns and Crowns were issued in 1690 with the same dies as other gun money coins. Both these coins are rare, along with a Groat struck in 1689, a pattern. Halfpennies and Pennies were produced in 1689 and 1690, less rare, although the 1689 penny is unknown. Irish Coinage by John Stafford-Langan
Sovereign (British coin)
The sovereign is a gold coin of the United Kingdom, with a nominal value of one pound sterling. Struck from 1817 until the present time, it was a circulating coin accepted in Britain and elsewhere in the world. In most recent years, it has borne the well-known design of Saint George and the Dragon on the reverse—the initials of the designer, Benedetto Pistrucci, may be seen to the right of the date; the coin was named after the English gold sovereign, last minted about 1603, originated as part of the Great Recoinage of 1816. Many in Parliament believed a one-pound coin should be issued rather than the 21-shilling guinea struck until that time; the Master of the Mint, William Wellesley Pole, had Pistrucci design the new coin, his depiction was used for other gold coins. The coin was unpopular as the public preferred the convenience of banknotes, but paper currency of value £1 was soon limited by law. With that competition gone, the sovereign not only became a popular circulating coin, but was used in international trade and in foreign lands, trusted as a coin containing a known quantity of gold.
The British government promoted the use of the sovereign as an aid to international trade, the Royal Mint took steps to see that lightweight gold coins were withdrawn from circulation. From the 1850s until 1932, the sovereign was struck at colonial mints in Australia, in Canada, South Africa and India—they have been struck again in India since 2013 for the local market; the sovereigns issued in Australia carried a unique local design, but by 1887, all new sovereigns bore Pistrucci's George and Dragon design. Strikings there were so large that by 1900, about 40 per cent of the sovereigns in Britain had been minted in Australia. With the start of the First World War in 1914, the sovereign vanished from circulation in Britain, replaced by paper money, it did not return after the war, though issues at colonial mints continued until 1932; the coin was still used in the Middle East, demand rose in the 1950s, which the Royal Mint responded to by striking new sovereigns in 1957. It has been struck since both as a bullion coin and, beginning in 1979, for collectors.
Though the sovereign is no longer in circulation, it is still legal tender in the United Kingdom. There had been an English coin known as the sovereign, first authorised by Henry VII in 1489, it had a diameter of 42 millimetres, weighed 15.55 grams, twice the weight of the existing gold coin, the ryal. The new coin was struck in response to a large influx of gold into Europe from West Africa in the 1480s, Henry at first called it the double ryal, but soon changed the name to sovereign. Too great in value to have any practical use in circulation, the original sovereign served as a presentation piece to be given to dignitaries; the English sovereign, the country's first coin to be valued at one pound, was struck by the monarchs of the 16th century, the size and fineness being altered. James I, when he came to the English throne in 1603, issued a sovereign in the year of his accession, but the following year, soon after he proclaimed himself King of Great Britain and Ireland, he issued a proclamation for a new twenty-shilling piece.
About ten per cent lighter than the final sovereigns, the new coin was called the unite, symbolising that James had merged the Scottish and English crowns. In the 1660s, following the Restoration of Charles II and the mechanisation of the Royal Mint that followed, a new twenty-shilling gold coin was issued, it had no special name at first but the public soon nicknamed it the guinea and this became the accepted term. Coins were at the time valued by their precious metal content, the price of gold relative to silver rose soon after the guinea's issuance. Thus, it came to trade at 21 shillings or sixpence more. Popular in commerce, the coin's value was set by the government at 21 shillings in silver in 1717, was subject to revision downward, though in practice this did not occur; the term sovereign, referring to a coin, fell from use—it does not appear in Samuel Johnson's dictionary, compiled in the 1750s. This economy was disrupted by the Napoleonic Wars, gold was hoarded. Among the measures taken to allow trade to continue was the issuance of one-pound banknotes.
The public came to like them as more convenient than the odd-value guinea. After the war, Parliament, by the Coinage Act 1816, placed Britain on the gold standard, with the pound to be defined as a given quantity of gold; every speaker supported having a coin valued at twenty shillings, rather than continuing to use the guinea. The Coinage Act did not specify which coins the Mint should strike. A committee of the Privy Council recommended gold coins of ten shillings, twenty shillings, two pounds and five pounds be issued, this was accepted by George, Prince Regent on 3 August 1816; the twenty-shilling piece was named a sovereign, with the resurrection of the old name promoted by antiquarians with numismatic interests. William Wellesley Pole, elder brother of the Duke of Wellington, was appointed Master of the Mint in 1812, with a mandate to reform the Royal Mint. Pole had favoured retaining the guinea, due to the number extant and the amount of labour required to replace them with sovereigns.
Formal instruction to the Mint came with an indenture dated February 1817, directing the Royal Mint to strike gold coins weighing 7.988 grams, to say, the new sovereign. The Italian sculptor Benedetto Pistrucci came to London early in 1816, his talent opened the doors of
Fixed exchange-rate system
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed against either the value of another single currency, a basket of other currencies, or another measure of value, such as gold. There are risks to using a fixed exchange rate. A fixed exchange rate is used to stabilize the value of a currency by directly fixing its value in a predetermined ratio to a different, more stable, or more internationally prevalent currency to which the value is pegged. In doing so, the exchange rate between the currency and its peg does not change based on market conditions, unlike flexible exchange regime; this makes trade and investments between the two currency areas easier and more predictable and is useful for small economies that borrow in foreign currency and in which external trade forms a large part of their GDP. A fixed exchange-rate system can be used to control the behavior of a currency, such as by limiting rates of inflation.
However, in doing so, the pegged currency is controlled by its reference value. As such, when the reference value rises or falls, it follows that the value of any currencies pegged to it will rise and fall in relation to other currencies and commodities with which the pegged currency can be traded. In other words, a pegged currency is dependent on its reference value to dictate how its current worth is defined at any given time. In addition, according to the Mundell–Fleming model, with perfect capital mobility, a fixed exchange rate prevents a government from using domestic monetary policy to achieve macroeconomic stability. In a fixed exchange-rate system, a country’s central bank uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed price in order to maintain its pegged ratio and, the stable value of its currency in relation to the reference to which it is pegged. To maintain a desired exchange rate, the central bank during the devaluation of the domestic money, sells its foreign money in the reserves and buys back the domestic money.
This creates an artificial demand for the domestic money. In case of an undesired appreciation of the domestic money, the central bank buys back the foreign money and thus flushes the domestic money into the market for decreasing the demand and exchange rate; the central bank from its reserves provides the assets and/or the foreign currency or currencies which are needed in order to finance any imbalance of payments. In the 21st century, the currencies associated with large economies do not fix or peg exchange rates to other currencies; the last large economy to use a fixed exchange rate system was the People's Republic of China, which, in July 2005, adopted a more flexible exchange rate system, called a managed exchange rate. The European Exchange Rate Mechanism is used on a temporary basis to establish a final conversion rate against the euro from the local currencies of countries joining the Eurozone; the gold standard or gold exchange standard of fixed exchange rates prevailed from about 1870 to 1914, before which many countries followed bimetallism.
The period between the two world wars was transitory, with the Bretton Woods system emerging as the new fixed exchange rate regime in the aftermath of World War II. It was formed with an intent to rebuild war-ravaged nations after World War II through a series of currency stabilization programs and infrastructure loans; the early 1970's saw the breakdown of the system and its replacement by a mixture of fluctuating and fixed exchange rates. Timeline of the fixed exchange rate system: The earliest establishment of a gold standard was in the United Kingdom in 1821 followed by Australia in 1852 and Canada in 1853. Under this system, the external value of all currencies was denominated in terms of gold with central banks ready to buy and sell unlimited quantities of gold at the fixed price; each central bank maintained gold reserves as their official reserve asset. For example, during the “classical” gold standard period, the U. S. dollar was defined as 0.048 troy oz. of pure gold. Following the Second World War, the Bretton Woods system replaced gold with the U.
S. dollar as the official reserve asset. The regime intended to combine binding legal obligations with multilateral decision-making through the International Monetary Fund; the rules of this system were set forth in the articles of agreement of the IMF and the International Bank for Reconstruction and Development. The system was a monetary order intended to govern currency relations among sovereign states, with the 44 member countries required to establish a parity of their national currencies in terms of the U. S. dollar and to maintain exchange rates within 1% of parity by intervening in their foreign exchange markets. The U. S. dollar was the only currency strong enough to meet the rising demands for international currency transactions, so the United States agreed both to link the dollar to gold at the rate of $35 per ounce of gold and to convert dollars into gold at that price. Due to concerns about America's deteriorating payments situation and massive flight of liquid capital from the U.
S. President Richard Nixon suspended the convertibility of the dollar into gold on 15 August 1971. In December 1971, the Smithsonian Agreement paved the way for the increase in the value of the dollar price of gold from US$35.50 to US$38 an ounce. Speculation against the dollar in March 1973 led to the birth of the independent float, thus terminating the Bretton Woods system. Since March 1973, the floating exchange rate has been followed and formally recognize