ECONOMIC UNIONS - THEIR ESTABLISHMENT AND REASONS FOR THEIR DESTABILIZATION
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The advantages of fixed exchange rates encourage politicians to create economic unions which were characterized by a stability of an exchange rate of particular currencies. In the 1940s, the Bretton Woods Agreement was signed. The system was based on the so-called asymmetry due to the fact that the US dollar played the role of a dominant currency (reserve currency), and the remaining participants of the Agreement were obliged to keep the exchange rate of their currencies fixed to the reserve. However, the asymmetry of the system became a primary cause of its destabilization. This came as a result of the fact that both the United States and the remaining countries would not give up the priorities of their own economic policy for the stability of the entire system. A similar situation occured in the European Monetary System (ESW) based on the German mark (DM), which was established in 1979.
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