(It also must be noted that the concept of floating exchange rate did not exist yet) (Wellhausen 10-7-14). William Jennings, in the 1896 US presidential campaign, supported bimetallism (gold and silver) while William McKinley supported the Gold Standard. The Gold Standard Advocate, William McKinley, is who went on to win the election. Just the thought of inflation would have creditors and banks at the point of panic. Panic of paramount significance. This, generally being because their currency would be worth less and would be worth less fast. Should they inflate, a debtor would be able to pay the same amount back which has a lower value. (Wellhausen, 10-7-14). Characterizing the Gold Standard in terms of the “Impossible Trinity,” which states that given the “incompatibility of three key desiderata of governments: exchange-rate stability, private-capital mobility, and monetary-policy autonomy” (Cohen, p. 279), you can have only two of the three at any given time. The tradeoff for the Gold Standard being monetary policy autonomy--complete monetary policy decision-making is sacrificed to become a player in the …show more content…
Countries didn’t have as much flexibility--even with a fixed but adjustable system--and too many countries fell into debt because they could neither inflate nor devalue their own currency (Wellhausen 10-7-14). The US had no flexibility due to it being pegged to the Gold. It wasn’t domestic monetary policy. It was pent up frustration due to industries being uncompetitive internationally. Suppressed inflation didn’t help either. For other countries, it was hovering between fixed exchange rates, capital mobility, and having to revalue currencies in order to help domestic industries (Wellhausen 10-7-14). Then came the issue of the Dollar overhand. The Dollar was the world’s main reserve currency: everything happened in Dollars. By the early 1970’s, the Dollar Overhand equaled too many dollars in the world and not enough Gold in the US. The capital account was in surplus and the current account was in deficit. The US wasn’t bringing in the money necessary to defend the fixed exchange rate, and it was difficult for the Federal Government to intervene in attempts to uphold the exchange rate. Speculative attacks led to having to choose between massive domestics’ inflation or going off fixed exchange rate (Wellhausen,