<p>In a floating exchange rate system, that today most countries have, the statement would not hold.</p>
<p>Under former Breton-Woods system all members pegged their currency at an de facto fixed exchange rate to US dollar (de jure they were allowed to float within <span class="math-container">$\pm 1\%$</span>, see <a href="https://www.federalreservehistory.org/" rel="nofollow noreferrer">Fed 2013</a>).</p>
<p>If a country is on fixed exchange rate, like for example 1USD = 1 local currency, then this fixed exchange can only be sustainable if local central bank is willing to always guarantee to buy 1 USD for 1 local currency.</p>
<p>If central bank wouldn’t do that then a black market would develop where price would be determined by market forces as opposed to the fixed exchange that is simply set by state. Hence if the central bank wants to keep the peg it has to be willing to purchase any amount of currency at that rate when push comes to shove. Alternatively central bank can reevaluate the currency to some sustainable value (although this new value will still have to be supported by central bank willing to purchase any amount of currency at this new value).</p>

CC BY-SA 4.0
2024-01-28T02:20:23.817Z
2024-01-28T02:20:23.817Z
1muflon1
<p>On pg. 10 of Emmanuel's <em><a href="https://libgen.rs/book/index.php?md5=5B9BBE36BD8B6F8C52A9DCDC834BFF4D" rel="nofollow noreferrer">Profit and Crises</a></em>, he says &quot;ever since the dollar standard was set up, no country could cease buying all the dollars offered to it without effectively revaluing its currency&quot;.</p>
<p>In the context of the international dollar standard, why would a country ceasing to buy dollars result in its national currency's revaluation?</p>

CC BY-SA 4.0
2024-01-28T01:20:20.477Z
What exactly does the author mean by the dollar standard? The Breton wood’s system?
1muflon1
CC BY-SA 4.0
2024-01-28T01:53:29.157Z
@1muflon1 the book was published in French in 1974, so post-Breton Woods but in its immediate wake. i would be satisfied with an answer confined to the BW system
shea
<currency-exchange>
Does buying dollars preserve a country's currency's exchange rate?
shea
# Does buying dollars preserve a country's currency's exchange rate?

(Asked by: username_0 on 2024-01-28)

On pg. 10 of Emmanuel's *[Profit and Crises](https://libgen.rs/book/index.php?md5=5B9BBE36BD8B6F8C52A9DCDC834BFF4D)*, he says "ever since the dollar standard was set up, no country could cease buying all the dollars offered to it without effectively revaluing its currency".

In the context of the international dollar standard, why would a country ceasing to buy dollars result in its national currency's revaluation?

**Tags:** currency-exchange
> **Comments:**
> **username_1**: What exactly does the author mean by the dollar standard? The Breton wood’s system?  
> **username_0**: @1muflon1 the book was published in French in 1974, so post-Breton Woods but in its immediate wake. i would be satisfied with an answer confined to the BW system  

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## 1 answers

### Answer by username_1 on 2024-01-28. Score: 0 | Accepted answer

In a floating exchange rate system, that today most countries have, the statement would not hold.

Under former Breton-Woods system all members pegged their currency at an de facto fixed exchange rate to US dollar (de jure they were allowed to float within $\pm 1\%$, see [Fed 2013](https://www.federalreservehistory.org/)).

If a country is on fixed exchange rate, like for example 1USD = 1 local currency, then this fixed exchange can only be sustainable if local central bank is willing to always guarantee to buy 1 USD for 1 local currency.

If central bank wouldn’t do that then a black market would develop where price would be determined by market forces as opposed to the fixed exchange that is simply set by state. Hence if the central bank wants to keep the peg it has to be willing to purchase any amount of currency at that rate when push comes to shove. Alternatively central bank can reevaluate the currency to some sustainable value (although this new value will still have to be supported by central bank willing to purchase any amount of currency at this new value).


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