How Fixed Are Global Exchange Rates?

We present a new global index indicating how fixed the world's exchange rates are. Our index measures the probability of two units of GDP, randomly selected anywhere in the world, of being involved in a fixed exchange rate arrangement. This approach is invariant to alternative classifications of the Eurozone and is able to account for both direct and indirect exchange rate linkages between countries. In contrast to the "New Consensus" view, which posits a continuity in exchange rate arrangements from the Bretton Woods era to the present, our index restores the conventional account of international monetary history over the last 70 years. Our findings indicate that global exchange rate regimes are currently more than twice as flexible as they were prior to the 1971 Nixon shock. Furthermore, our measure partially puts into perspective the view that dollar dominance is now stronger than ever: we find that global anchoring to the US dollar was significantly more prevalent during Bretton Woods, particularly when accounting for indirect links.