The working of fixed rate systems without an international currency

Under a gold standard the producers of money give a convertibility guarantee at a fixed price in terms of gold. In modern monetary sytems such an international reference money no longer exists, so that convertibility guarantees are given in terms of one specific ‘national’ currency (for instance, the dollar in a dollar standard). In such systems there can be conflicting monetary and exchange rate policies. These problems and the ways to solve them are studied, first, in the case of a two-country model; and second, in the case of n countries and n currencies. In this latter case, there is what is called the ‘n_1 problem’, that is, the fact that all the monetary policies of the countries which belong to a system of fixed rates are dependent, except the monetary policy of one of them (there are n_1 dependent monetary policies).