Reviewing and understanding the exchange rate system can give us a deeper understanding of exchange rate fluctuations in the international financial market.

In the history of international finance, three exchange rate systems have emerged for a long time, namely the fixed exchange rate system under the gold standard system, the fixed exchange rate system under the Bretton Woods system, and the floating exchange rate system.

1. Fixed exchange rate system under the gold standard system. During the 35 years from 1880 to 1914, major Western countries adopted the gold standard, that is, each country used gold coins with a certain fineness and weight as currency in circulation. Gold coins could be freely minted, freely exchanged and freely exported.

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Under the gold standard system, the exchange rate of currencies between two countries is determined by the ratio of their respective gold contents - the gold parity. For example, the gold content of a pound is 113.0015 greens, and the gold content of a US dollar is 23.22 greens, then: 1

GBP=113.0015/23.22=4.8665 USD As long as the gold content of the two currencies remains unchanged, the exchange rate of the two currencies will remain stable.

Of course, this fixed exchange rate is also affected by the supply and demand of foreign exchange and the balance of payments, but the fluctuation of the exchange rate is limited to the gold point.

The gold transfer point refers to the limit where gold is exported or imported from a country due to exchange rate fluctuations.

The highest limit of exchange rate fluctuation is the mint parity plus gold transportation fee, which is the Gold Export Point; the lowest limit of exchange rate fluctuation is the mint parity minus gold transportation fee, which is the Gold Import Point.

When a country has a deficit in its international balance of payments and the foreign exchange rate rises beyond the gold output point, it will cause the outflow of gold, reduce currency circulation, deflation, and drop in prices, thus improving the competitiveness of commodities in the international market.

The output increases and the input decreases, causing the balance of payments to return to equilibrium; conversely, when a surplus occurs in the balance of payments, the foreign exchange rate falls below the gold input point, which will cause an inflow of gold, an increase in currency circulation, an increase in prices, a decrease in output, and an increase in inputs.

, finally leading to the restoration of balance of international payments.

Due to the functional role of gold delivery points and commodity prices, exchange rate fluctuations are limited to a limited range and play an automatic adjustment role in the exchange rate, thus maintaining a relatively stable exchange rate.

In the 35 years before World War I, the exchange rates of the United States, Britain, France, Germany and other countries had never experienced fluctuations in appreciation or depreciation.

When World War I broke out in 1914, countries stopped exporting and exporting gold, and the gold standard system collapsed.

Between World War I and World War II, currencies of various countries basically did not abide by a universal exchange rate rule and were in a chaotic state of going their own way.

The 35 years of the gold standard system were the "golden age" when liberal capitalism prospered. The fixed exchange rate system guaranteed the security of international trade and credit, facilitated the accounting of production costs, avoided exchange rate risks in international investment, and promoted international trade and investment.

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However, the strict fixed exchange rate system makes it difficult for countries to implement favorable monetary policies according to the needs of their own economic development, and economic growth is greatly restricted.

2. The fixed exchange rate system under the Bretton Woods system The fixed exchange rate system under the Bretton Woods system can also be said to be a fixed exchange rate system centered on the US dollar.

In July 1944, on the eve of the victory of World War II, the 45 Allied Powers in World War II held the "United and Alliance Nations International Monetary and Financial Conference" in the village of Bretton Woods in New Hampshire, USA.

", adopted the Agreement of the International Monetary Fund and the Agreement of the International Bank for Reconstruction and Development, based on the White Plan proposed by U.S. Assistant Secretary of the Treasury White, collectively known as the Bretton Woods Agreement, and thus began the Bretton Woods system.

The Bretton Woods system established an international monetary cooperation institution (the "International Monetary Fund" and the "International Bank for Reconstruction and Development", also known as the "World Bank" were established in December 1945), stipulated the exchange rate system that countries must abide by, and solved the international problems of various countries.

Measures to balance the balance of payments, thereby defining the international monetary system centered on the US dollar.

The exchange rate system under the Bretton Woods system can be summarized as a "double peg" system in which the U.S. dollar is pegged to gold and other currencies are pegged to the U.S. dollar.

The specific content is: The United States announced the gold content of the U.S. dollar. The gold content of 1 U.S. dollar is 0.888671 grams. The exchange ratio of the U.S. dollar to gold is 1 ounce of gold = 35 U.S. dollars.

Other currencies are pegged to the U.S. dollar based on their gold content to determine their exchange rates with the U.S. dollar.

This means that other countries’ currencies are pegged to the U.S. dollar, and the U.S. dollar has become the center around which all currencies revolve.

The exchange rates of various currencies against the U.S. dollar can only fluctuate within a limit of 1% above and below parity. After December 1971, it was adjusted to a fluctuation of 2.25% above and below parity. Beyond this limit, central banks of various countries are obliged to intervene in the foreign exchange market to maintain stability.

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Depreciation or appreciation is only allowed when a country's international balance of payments has a "fundamental imbalance."

If each member country needs to change the parity, it must notify the IMF in advance. If the change is less than 10% of the old parity, the IMF shall have no objection; if it exceeds 10%, the change must be made with the consent of the IMF.