Nobel economics laureate Robert Mundell wrote in 1998 that the dollar-euro exchange rate would go on to become the most important price in the world. Mundell, who was known as the father of the euro, was exactly right. Since the euro was introduced in the following year, the dollar-euro has been, by volume of transactions, far and away the most important currency pair. It has also fluctuated wildlyreaching 84 U.S. cents per euro in 2000 and $1.59 in 2008. Today, its at paritya rate that hasnt been seen for 20 years.
The exchange rates of major currencies havent always been so volatile. The Bretton Woods Agreement of 1944 ushered in a system of international exchange-rate fixity and stability. A golden age of record-setting performances among the worlds advanced capitalist countries ensued. But that global monetary system was scrapped 29 years later by the unilateral action of the Nixon administration. What followed was an era of flexible, unstable exchange rateswhat the great French economist Jacques de Larosière terms an anti-systemin which the advanced economies experienced a dramatic growth slowdown and a sharp acceleration of inflation.