For about three thousand years the international monetary system was based on currencies with an intrinsic value connected to its content in some precious metal, specie-flows maintained competitive equilibrium, and, at least in normal times, exchange rates were stable. Since the nineteen seventies currencies have no intrinsic value. With currencies without any intrinsic value, how the equilibrium
... [Show full abstract] exchange rates could be defined? Which is the equilibrating mechanism? The experience has shown that flexible exchange rates determined by currency markets are often volatile and several countries have hence tried to maintain fixed exchange rates through interventions in currency markets. Governments, however, do not have sufficient financial resources to contrast effectively destabilizing speculation. Some EU countries, to eradicate the problem of unpredictably variable exchange rates, starting from 1999, have adopted a common currency. But the absence of an effective equilibrating mechanism led to strong competitive imbalances and the euro seemed on the verge of a collapse in 2009–2010. The price divergence went back to the first years of the euro, but it remained quite unnoticed until 2008, when competitive imbalances had reached so high a level to make it appear very difficult to eliminate them without a break-up of the euro. From 2010 to 2016, against most predictions, a competitive balance inside the euro area seems to have been substantially restored, and the risk of a break-up of the euro has been greatly reduced, but only at the cost of very strong deflationary policies in Mediterranean countries and Ireland.
