国际金融英文课件：Chapter_02 The International Monetary System

1、Chapter Objective:This chapter serves to introduce the student to the institutional framework within which:International payments are made.The movement of capital is accommodated.Exchange rates are determined.2Chapter TwoThe International Monetary System2-0lEvolution of the International Monetary Sy

2、stemlCurrent Exchange Rate ArrangementslEuropean Monetary SystemlEuro and the European Monetary UnionlThe Mexican Peso CrisislThe Asian Currency CrisislThe Argentine Peso CrisislFixed versus Flexible Exchange Rate RegimesChapter Two Outline2-1Evolution of the International Monetary SystemlBimetallis

3、m: Before 1875lClassical Gold Standard: 1875-1914lInterwar Period: 1915-1944lBretton Woods System: 1945-1972lThe Flexible Exchange Rate Regime: 1973-Present2-2Bimetallism: Before 1875lA “double standard” in the sense that both gold and silver were used as money.lSome countries were on the gold stand

4、ard, some on the silver standard, some on both.lBoth gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. 2-3Greshams LawlGreshams Law implied that it would be the least valuable metal that would

5、tend to circulate. lSuppose that you were a citizen of Germany during the period when there was a 20 German mark coin made of gold and a 5 German mark coin made of silver.lIf Gold suddenly and unexpectedly became much more valuable than silver, which coins would you spend if you wanted to buy a 20-m

6、ark item and which would you keep?2-4Classical Gold Standard: 1875-1914lDuring this period in most major countries:lGold alone was assured of unrestricted coinagelThere was two-way convertibility between gold and national currencies at a stable ratio.lGold could be freely exported or imported.lThe e

7、xchange rate between two countrys currencies would be determined by their relative gold contents.2-5For example, if the dollar is pegged to gold at U.S. $30 = 1 ounce of gold, and the British pound is pegged to gold at 6 = 1 ounce of gold, it must be the case that the exchange rate is determined by

8、the relative gold contents:Classical Gold Standard: 1875-1914$30 = 1 ounce of gold = 6$30 = 6$5 = 12-6Classical Gold Standard: 1875-1914lHighly stable exchange rates under the classical gold standard provided an environment that was conducive to international trade and investment.lMisalignment of ex

9、change rates and international imbalances of payment were automatically corrected by the price-specie-flow mechanism.2-7Price-Specie-Flow MechanismlSuppose Great Britain exported more to France than France imported from Great Britain.lThis cannot persist under a gold standard.lNet export of goods fr

10、om Great Britain to France will be accompanied by a net flow of gold from France to Great Britain.lThis flow of gold will lead to a lower price level in France and, at the same time, a higher price level in Britain.lThe resultant change in relative price levels will slow exports from Great Britain a

11、nd encourage exports from France.2-8Classical Gold Standard: 1875-1914lThere are shortcomings:lThe supply of newly minted gold is so restricted that the growth of world trade and investment can be hampered for the lack of sufficient monetary reserves.lEven if the world returned to a gold standard, a

12、ny national government could abandon the standard.2-9Interwar Period: 1915-1944lExchange rates fluctuated as countries widely used “predatory” depreciations of their currencies as a means of gaining advantage in the world export market.lAttempts were made to restore the gold standard, but participan

13、ts lacked the political will to “follow the rules of the game”.lThe result for international trade and investment was profoundly detrimental.2-10Bretton Woods System: 1945-1972lNamed for a 1944 meeting of 44 nations at Bretton Woods, New Hampshire.lThe purpose was to design a postwar international m

14、onetary system.lThe goal was exchange rate stability without the gold standard.lThe result was the creation of the IMF and the World Bank.2-11Bretton Woods System: 1945-1972lUnder the Bretton Woods system, the U.S. dollar was pegged to gold at $35 per ounce and other currencies were pegged to the U.

15、S. dollar.lEach country was responsible for maintaining its exchange rate within 1% of the adopted par value by buying or selling foreign reserves as necessary.lThe Bretton Woods system was a dollar-based gold exchange standard.2-12Bretton Woods System: 1945-1972German markBritish poundFrench francU

16、.S. dollarGoldPegged at $35/oz.Par ValuePar ValuePar Value2-13Bretton Woods System: 1945-1972lAdvantages:lThe system economizes on gold (foreign exchanges also as international means of payment)lCountries earn interest on foreign exchanges lCountries save transaction costslShortcomings:lTriffin para

17、doxlAs world currency, US should export $ continually; as national reserve currency, value of $ should be stable.lEfforts to remedy dollar crisis:lSeries of dollar defense measureslInterest Equalization Tax (IET)lForeign Credit Restraint Program (FCRP)lCreation of SDRlSmithsonian Agreementl1 ounce o

18、f Gold=38 $lOther currencies revalued against $ up to 10%lExchange rate band expanded to 2.25% The Flexible Exchange Rate Regime: 1973-Present.lFlexible exchange rates were declared acceptable to the IMF members.lCentral banks were allowed to intervene in the exchange rate markets to iron out unwarr

19、anted volatilities.lGold was abandoned as an international reserve asset.lNon-oil-exporting countries and less-developed countries were given greater access to IMF funds.2-16Current Exchange Rate ArrangementslFree Float lThe largest number of countries, about 48, allow market forces to determine the

20、ir currencys value.lManaged Float lAbout 25 countries combine government intervention with market forces to set exchange rates.lPegged to another currency lSuch as the U.S. dollar or euro (through franc or mark).lNo national currencylSome countries do not bother printing their own currency. For exam

21、ple, Ecuador, Panama, and El Salvador have dollarized. Montenegro and San Marino use the euro.2-17European Monetary SystemlEuropean countries maintain exchange rates among their currencies within narrow bands, and jointly float against outside currencies.lObjectives:lTo establish a zone of monetary

22、stability in Europe.lTo coordinate exchange rate policies vis-vis non-European currencies.lTo pave the way for the European Monetary Union.2-18Main Instruments of EMSlEuropean currency unit (ECU)lBasket currency constructed as weighted average of currencies of member countries.lBased on each currenc

23、ys relative GNP and share in intra-tradelExchange rate mechanismlProcedures by which EMS member countries collectively manage their exchange rates.lBased on parity grid system.Requirements for MemberslKeep ratio of budget deficits to GDP below 3%.lKeep gross public debts below 60% of GDP.lHigh degre

24、e of price stability.lMaintain its currency within the prescribed exchange rate ranges of the ERM.What Is the Euro?lThe euro is the single currency of the European Monetary Union which was adopted by 11 Member States on 1 January 1999. lThese original member states were: Belgium, Germany, Spain, Fra

25、nce, Ireland, Italy, Luxemburg, Finland, Austria, Portugal and the Netherlands.2-21What are the Different Denominations of the Euro Notes and Coins ?lThere are 7 euro notes and 8 euro coins. l500, 200, 100, 50, 20, 10, and 5. lThe coins are: 2 euro, 1 euro, 50 euro cent, 20 euro cent, 10, euro cent,

26、 5 euro cent, 2 euro cent, and 1 euro cent. lThe euro itself is divided into 100 cents, just like the U.S. dollar.2-22Euro ArealAustria, lBelgium,lCyprus, lFinland, lFrance, lGermany, lGreece, lIreland, lItaly, lLuxembourg, lMalta, lThe Netherlands,lPortugal, lSlovenia, lSpain2-26Value of the Euro i

27、n U.S. Dollars2-27Robert MundelllNobel prize winner in 1999lFather of EurolOptimum currency areaslImpossible trinityBenefits of Monetary UnionlReduced transaction costs and the elimination of exchange rate uncertainty.lTransaction costs 0.4% of Europes GDP.lEconomic agents benefit from elimination o

28、f exchange rate uncertainty.lCreate conditions conducive to development of capital markets with depth and liquidity.lPromote political cooperation and peace in Europe.Costs of Monetary UnionlThe main cost of monetary union is the loss of national monetary and exchange rate policy independence.lThe m

29、ore trade-dependent and less diversified a countrys economy is the more prone to asymmetric shocks that countrys economy would be.2-30Financial crisislFinancial crisisla variety of situations in which some financial institutions or assets suddenly lose a large part of their value.lStock market/real

30、estate crasheslBanking crisislInterest rate highlEnterprise bankruptcylDebt crisis/Sovereign debt crisislCurrency crisisEuropean currency crisisl1992-1993 pound crisis, lira crisislBritain, Italy: loose monetary policy; interest rate downlGermany: fiscal policy; interest rate highlEU unified monetar

31、y policy; independent fiscal policy.The Mexican Peso CrisislOn 20 December, 1994, the Mexican government announced a plan to devalue the peso against the dollar by 14 percent.lThis decision changed currency traders expectations about the future value of the peso.lThey stampeded for the exits. lIn th

32、eir rush to get out the peso fell by as much as 40 percent.2-33The Mexican Peso CrisislThe Mexican Peso crisis is unique in that it represents the first serious international financial crisis touched off by cross-border flight of portfolio capital.lTwo lessons emerge:lIt is essential to have a multi

33、national safety net in place to safeguard the world financial system from such crises.lAn influx of foreign capital can lead to an overvaluation in the first place.2-34The Asian Currency CrisislThe Asian currency crisis turned out to be far more serious than the Mexican peso crisis in terms of the e

34、xtent of the contagion and the severity of the resultant economic and social costs.lMany firms with foreign currency bonds were forced into bankruptcy.lThe region experienced a deep, widespread recession.2-35The Argentinean Peso CrisislIn 1991 the Argentine government passed a convertibility law tha

35、t linked the peso to the U.S. dollar at parity.lThe initial economic effects were positive:lArgentinas chronic inflation was curtailedlForeign investment poured inlAs the U.S. dollar appreciated on the world market the Argentine peso became stronger as well.2-36The Argentinean Peso CrisislThe strong

36、 peso hurt exports from Argentina and caused a protracted economic downturn that led to the abandonment of pesodollar parity in January 2002.lThe unemployment rate rose above 20 percentlThe inflation rate reached a monthly rate of 20 percent2-37The Argentinean Peso CrisislThere are at least three fa

37、ctors that are related to the collapse of the currency board arrangement and the ensuing economic crisis:lLack of fiscal discipline lLabor market inflexibilitylContagion from the financial crises in Brazil and Russia2-38Currency Crisis ExplanationslIn theory, a currencys value mirrors the fundamenta

38、l strength of its underlying economy, relative to other economies, In the long run.lIn the short run, currency traders expectations play a much more important role.lIn todays environment, traders and lenders, using the most modern communications, act by fight-or-flight instincts. For example, if the

39、y expect others are about to sell Brazilian reals for U.S. dollars, they want to “get to the exits first”. lThus, fears of depreciation become self-fulfilling prophecies.2-39lIncompatible trinitylFixed exchange ratelFree international flows of capitallIndependent monetary policyFixed versus Flexible Exchange Rate RegimeslArguments in favor of flexible exchange rates:lEasier external adjustments.lNational policy autonomy.lArguments against flexible e