Forex Development of Currency Areas

Proper functioning of regional arrangements like sterling area of dollar area would be facilitated with the stable exchange rates. IN such arrangements. If flexible rates prevail, especially for the major currency like pound sterling or dollar with which the other currencies.

The argument that stable rates of exchange are required for development of regional arrangements does not stand the test of proof. The case of sterling area is a good illustration in this regard. The sterling area was promoted in 1930s at which time the pound sterling was free to fluctuate under market conditions. Therefore, it is clear that the strength was free to fluctuate freely would not weaken the area if the decision is taken after consultation with member countries.