How Well Are Fluctuating Exchange Rates Working Hearings Ninety Third Congress

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Many commodity agreements will therefore have to be sub- stantially modified in order to be able to function. Another danger of the present system originating in the special circumstances in which it was introduced rather than in the nature of the system itself is the possi- bility that the resulting structure may provide domestic producers with false incentives. The last few crises have been generally classified as originating in a "confidence problem" rather than a fundamental disequilibrium.... If this is the case the present state of flux and the resulting structure of rates may last longer than originally thought. These structures may result in the creation of incentives and disincentives and in the establishment of a productive structure which is incom- patible with the long-run structure of exchange rates. This possibility is very real and dangerous for developing countries which have a very simple structure of" production and which in many cases do not have the organization, information and knowledge required to successfully forecast future events.

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