Full-bodied money

3. Full-bodied money is a commodity that performs all the functions of money and has intrinsic value equal to its value as a unit of account.
4. The three monetary standards differ in the method and extent to which gold is exchanged for paper money. The gold coin standard involves mints that accept and manufacture coins as prescribed by law; the gold coins are legal tender. The gold bullion standard uses paper money as legal tender, but this paper money is convertible into gold bullion. The gold exchange standard also uses paper money as legal tender. In this case, the paper money is convertible into another currency of another country and the second currency is convertible into gold.
5. World War II was being waged in 1944 and the economies of several industrialized countries were devastated as a result. One impact of the war effort was that money supplies and exchange rate levels were quite volatile. The Bretton Woods conference was intended to help stabilize currency markets and to provide a mechanism for reconstruction after the war.
6. The Smithsonian Agreement in 1971 increased the degree to which the currencies of certain members of the International Monetary Fund could fluctuate relative to the U.S. dollar--plus or minus 2.25 percent of the pegged exchange rate. The EC elected a tighter band (one half the Smithsonian band) with the objective of having their currency values eventually converge.
7. When there are wild currency fluctuations, the price of imports and exports will also fluctuate. For a country with a meaningful level of foreign trade, these swings can destabilize the economy. Also fluctuating currency values and the associated uncertainty can discourage the flow of foreign capital into the country.
8. The holdings of convertible dollars outside the United States rose from $4.8 billion in 1947 to $13 billion in 1956. European banks began to trade in