FOREX

During the first decade and a half after World War II, the United States monetary authorities did not actively intervene or directly operate in the foreign exchange market for the purpose of influencing the dollar exchange rate or exchange market conditions.

Under the Bretton Woods par value exchange rate system, the obligation of the United States was to assure the gold convertibility of the dollar at $35 per ounce to the central banks and monetary authorities of IMF members. The actions of other governments, intervening in dollars as appropriate to keep their own currencies within the one percent of dollar par value that IMF rules required, maintained the day-to-day market level of the dollar within those narrow margins. Under that arrangement, the United States played only a passive role in the determination of exchange rates in the market: In a system of “n” currencies, not every one of the “n” countries can independently set its own exchange rate against the others. Such a system would be over-determined. At least one currency must be passive, and the dollar served as that “nth” currency.