Recently Professor Ronald McKinnon of Stanford published a book with a lovely title: “The unloved dollar standard”. Professor McKinnon´s main thesis is that to better stabilize the USA and world economies the unloved dollar standard has to be rehabilitated by ‘internationalizing’ American monetary and financial policies, where by ‘internationalizing’ American monetary and financial policies he means stabilizing the value of the dollar in the foreign exchange markets.
I´m not going to do a review of the book. It´s ‘history rich’ and for that reason alone deserves to be read. As a market monetarist I favor the stabilization of NGDP, not the foreign exchange value of the dollar. I also think that the dollar is the world´s ‘shock absorber’, and if the US tries to stabilize its foreign exchange value it will likely get into trouble. However, for small open economies the reasoning may be different (Lars has posted on the matter)
The charts below graph the dollar against a basket of major currencies through time since the end of the Bretton Woods era of fixed exchange rates. It´s really a story of “up & down and merrily fluctuating around”.