CH 6

revalue

to increase the value of a currency against the value of other currencies.

devalue

to reduce the value of a currency against the value of other currencies.

devaluation

a downward adjustment of the exchange rate by a central bank.

revaluation

an upward adjustment of the exchange rate by a central bank.

snake

arrangement established in 1972, whereby European currencies were tied to each other within specified limits.

European Central Bank (ECB)

central bank created to conduct the monetary policy for the countries participating in the single European currency, the euro.

Smithsonian Agreement

conference between nations in 1971 that resulted in a devaluation of the dollar against major currencies and a widening of boundaries (2 percent in either direction) around the newly established exchange rates.

Bretton Woods Agreement

conference held in Bretton Woods, New Hampshire, in 1944, resulting in an agreement to maintain exchange rates of currencies within very narrow boundaries; this agreement lasted until 1971.

managed float

exchange rate system in which currencies have no explicit boundaries, but central banks may intervene to influence exchange rate movements.

pegged exchange rate

exchange rate whose value is pegged to another currency's value or to a unit of account.

sterilized intervention

intervention by the Federal Reserve in the foreign exchange market, with simultaneous intervention in the Treasury securities markets to offset any effects on the dollar money supply; thus, the intervention in the foreign exchange market is achieved without affecting the existing dollar money supply.

nonsterilized intervention

intervention in the foreign exchange market without adjusting for the change in money supply.

exchange rate mechanism (ERM)

method of linking European currency values with the European Currency Unit (ECU).

freely floating exchange rate system

monetary system in which exchange rates are allowed to move due to market forces without intervention by country governments.

fixed exchange rate system

monetary system in which exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries.

dollarization

replacement of a foreign currency with U.S. dollars.