We are going to talk about some trade-offs involving the adoption of different monetary policies—namely a floating exchange range, a pegged exchange rate or a merged currency—focusing on the impacts of printing local currency versus using a merged one.
In this video, Dr. Barry Eichengreen explains some of the problems associated with floating exchange rates, and what some countries do to try to avoid those problems. Particularly, he uses three historical examples of pegged or merged currency: the Golden Standard of the late 19th Century, the European Monetary System of the 1980s and 1990s, and the Euro. What are some of the benefits of using a pegged or merged currency, when compared to a floating exchange rate, and what are some of the problems identified by Professor Eichengreen? What are some of the ways through which a country can alleviate the impacts of having a merged or hard pegged currency? Specifically, what are some of the characteristics of the Euro Zone that make it hard for countries to alleviate the impacts of an economic crisis? Finally, consider some communities in the United States that use their own local currency instead of the U.S. Dollar, like the Ithaca Hours ( Ithaca Hours.) (Ithaca, New York), the BerkShares BerkShares) (Berkshires region, Massachusetts), and the Bay Buck ( Bay Buck) (Traverse City, Michigan). Given your knowledge of exchange rates and the benefits and problems of printing your own currency, do you think that those local policies make such communities economically stronger? Justify your answer.
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