Part IV

Conducting a Background Check: Changes in Currency through the Years

Data available at http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html. Annual averages are calculated from daily data. USD, GBP, CHF, and AUD represent the U.S. Dollar, British Pound Sterling, Swiss Franc, and Australian Dollar, respectively.

Learn how a common currency works and the effort that goes into creating one in the article "Creating a Common Currency" at www.dummies.com/extras/internationalfinance.

In This Part . . .

I give some background on how the type of money has changed around the world through the ages.

You’ll be able to examine the close relationship between the type of money (fiat money vs. metallic standard) and the resulting exchange rate system.

I share information on the Bretton Woods era (1944-1971). You’ll learn that the reserve currency system of the Bretton Woods era was a specific type of metallic standard.

I uncover the post-Bretton Woods era during which a variety of exchange rate regimes appeared. You’ll understand why most developed countries adopted floating exchange rates, while developing countries opted out for unilaterally pegged exchange rates.

You’ll discover what the Optimum Currency Area (OCA) is and review its characteristics through the example of the euro.