Part IV Exchange Controls, Exchange Rates, and Sanctions, 18 Exchange Rates

Subject(s):

Exchange Rates — Exchange control — Monetary obligations

This chapter assesses exchange rates. Monetary systems may be related to each other by two means of measurement, the (nominal) par of exchange and the (real) rate of exchange. The par of exchange is the equation between two money units, each based on a fixed (usually metallic) standard. Where both currencies were based on the gold standard, each currency would have a value in terms of gold, by reference to a fixed quantity or weight of gold. From the common element of these two equations (namely the relevant quantity of gold), it was possible to derive a third, which provided a par (or fixed) value between the two currencies concerned. The par of exchange sometimes represented an equality fixed by law. The chapter then looks at four distinct problems which are likely to arise whenever it is necessary to employ a rate of exchange for the purpose of converting a sum of money from one currency into another. It also considers the process of identifying the rate of exchange.