国际金融英文版CH2

Chapter4InternationalMonetarySystemDefinitionoftheInternationalMonetarySystemInternationalmonetarysystemisasetofconventions,rules,proceduresandinstitutionsthatgoverntheconductoffinancialrelationsbetweennations.Internationalmonetarysystemisbasedontheexchangeratesystemadoptedbyindividualnations.Theexchangeratesystemisasetofrulesgoverningthevalueofacurrencyrelativetoothercurrencies.Thecenterpieceofthesystemistoselectaninternationalcurrencyasamediumofexchangeininternationalsettlements.Commoditymoneysuchasgoldorsilverwerewidelyusedinhistory.Goldorsilverwereinconvenienttocarryandimpracticalinsettlement.Commodity-backedmoneyreferstothebanknoteswhicharebackedbygoldorsilver.Thebanknotescanbefreelyconvertedintogoldorsilver.Fiatmoneyisinconvertiblemoneythatismadelegaltenderbygovernmentdecree.Theonlythinggivesthemoneyvalueisthefaithplacedinitbythepeoplethatuseit.Aninternationalmonetarysystemneedstosolvethefollowingproblems:Aninternationalcurrency;Thedeterminationoftheexchangerate;Amechanismofbalance-of-paymentsadjustment.TheClassicalGoldStandard(1876–1914)Thegoldstandardwasacommitmentbyparticipatingnationstofixthepriceoftheirdomesticcurrenciesintermsofaspecifiedamountofgold.Thegovernmentannouncesthegoldparvaluewhichistheamountofitscurrencyneededtobuyoneounceofgold.Therefore,thegoldwastheinternationalcurrencyunderthegoldstandard.GoldStandardandExchangeValuesPeggingthevalueofeachcurrencytogoldestablishedanexchangeratesystem.Thegoldparvaluedeterminedtheexchangeratebetweentwocurrenciesknownas“mintparofexchange”Sinceeachcountryhasthegoldparvalue,theexchangeratewasthendeterminedbythegoldparvalueofeachcurrency.Theexchangeratewasprettystablebecauseofthegoldimportandexportpoint.Thegoldstandardwasregardedas“fixedexchangerate”system.TheBOPdisequilibriumwascorrectedby“Price-specie-flowmechanism”.ExampleofgoldexportandimportIfthegoldparvalueinNewZealandwasNZ$125/ounceandA$100/ounceinAustralia,somintparofexchange:100/125=A$0.80/NZ$Costsofgoldtransportation:A$0.008/NZ$Theexchangeratewouldfluctuatebetween(0.80+0.008)=0.8008and(0.80–0.008)=0.7920.8008and0.792arecalledgoldexportandimportpoints.Price-specie-flowmechanism

Rapidgrowthrate(techinnovation)OutputsincreasePricesfallExportsriseImportsshrinkBOPsurplusesGoldinflowsMoneysupplyupPricesupExportsdeclineImportsincreaseBOPdeficitsGoldoutflowsPerformanceofthegoldstandardLong-termpricestability(lowerinflationrate)0.1%(1880–1914),4.2%(1946–1990)NocentralbankneededVulnerabletorealandmonetaryshocksInflationinonecountrywouldinfluenceprices,moneysupplyandrealincomeofanothercountry.

Higherunemploymentrate6.8%(1879–1913),5.6%(1946–1990)Highercosttomaintainthesystem,in1990thecostwouldbe$137billion.Limitedsupplyofthegoldcanhampertherapidgrowthofinternationaltradeandinvestment.TheInternationalMonetarySystemfrom1914to1944WorldWarIinterruptedtradeandthefreemovementofgold.Maincountriessuspendedconvertibilityofgold.Theyalsoimposedembargoesongoldexports.Exchangeratewerefluctuatedoverfairlywiderangesbecauseofthepredatorydevaluationofthedomesticcurrency.Goldexchangesystemwereadopted.Othercountriesheldgold,U.S.dollarsorBritishpoundsasreserves.U.S.andU.K.heldgold.U.S.andU.K.tradedgoldonlywithforeigncentralbanks,notprivatecitizens.From1934totheendoftheWar,countriesadoptedpaperstandard,thegoldstandardwasvirtuallyabandoned.Theinternationaltradeandinvestmentdeclinedtoahistoricallowlevelwiththeprotectionistpoliciesadoptedbymanycountries.BrettonWoodsSystem(1944–1971)BrettonWoodsAgreementwastodesignanewinternationalmonetarysystem.Internationalmonetaryfund(IMF)tolendtomembercountriesexperiencingashortageofforeignexchangereservesTheInternationalBankforReconstructionandDevelopment(IBRD)(Worldbank)tofinancepostwarreconstructionGATT(WTO)topromotethereductionoftradebarriersandsettletradedisputesPeggedexchangeratesystemUSdollarwastheinternationalcurrency.EachcountrypeggedthevalueoftheircurrenciestotheUSdollar.USdollarwaspeggedtothegold.($35/ounce)Paritybandwaswithin1%oneitherside.Thepeggedvaluewasadjustable.TheBrettonWoodsSystemThevalueofthedollarwaspeggedtogoldandthedollarwasconvertibletogoldatthemintparityrate.Apeggedexchangeratesysteminwhichacountrypegsthevalueofitscurrencytothecurrencyofanothernation.Inpracticeadollar-exchange-ratesystemasnationspeggedtothedollarandfreelyexchangedthedomesticcurrencyforthedollarattheparityrate.TriffindilemmaTheU.S.wouldneitherrunBOPsurplusofdeficits.IfU.S.keepsBOPsurplus,therewouldnotbeenoughinternationalcurrencyforworldtradeandinternationalinvestment.IfU.S.haslongtermBOPdeficit,peoplewilllosetheconfidencetothedollar.DeclineofBrettonWoodssystemEuropeanandJapaneseeconomygrewfast.USdollarswerebeingspentoverseas,intheformofforeignaid,defensespending,trade,investmentandtourism.U.S.ranBOPdeficitsin1960s.(capitalaccount)Dollarcrises(1965,1968)WorseningsituationinVietnamRumorstheUSintendtoeliminatethegoldreserverequirementagainstdeposits,notesFrenchverbalattacksontheUSdollardrasticincreaseinpurchasesofgold(1968)Goldpoolclosedin1968.U.S.BalanceofPayments1959––1973($billions)ThebreakdownoftheBrettonWoodssystemU.S.suspendedtheconvertibilityofthedollarintogoldin1971.Anemergency10%tariffonallUSimportsPriceandwagecontrolstostabilizeinflationThosemeasuresofficiallybrokeoffthelinkbetweentheU.S.dollarandthegold.TheBrettonWoodssystemwascallapsed.Smithsonianagreement(Dec.1971)G-10metinSmithsonianInstituteinDecember1971toreachtheagreement.Devaluedollaragainstgold($35to$38)Revalueothercurrenciesagainstdollar(8%)Paritybandwidened(±±1%to±±2.25%)U.S.remove10%tariffAftertheSmithsonianagreement,majorcurrencieswereallowedtofluctuate.TheoilcrisisanditsaftermathIn1973,OPECquadrupledtheoilpricewhichhadahugeimpactontheworldeconomyandeffectivelyendedanyhopesofrestoringafixedexchangeratesystem.LDCswerehardhitbothbyhighoilpricesandrecessionintheindustrializedcountries.OilimportingcountriessuchasJapanandUKsufferedgreatlyfromtheshock.TherealpriceofOPECcrudeoilGlobalcurrentaccountbalances1973-80($billions)FloatingExchangeRateSystem

(1976––Now)Jamaicaaccord(1976)Jamaicaaccordin1976amendedtheIMFconstitutionandsignifiedthestartofthefloatingexchangerateera.Floatingratesweredeclaredacceptable.Goldwasabandonedasareserveasset.TotalannualIMFquotaswereincreasedto$41billion.(in2008,$311billion)Plazaagreement(1985)G-5jointlyintervenedtheforeignexchangemarkettopullthevalueofthedollardown.Louvreaccord(1987)G-7declaredtoceasetodrivedownthevalueofthedollarsincetheyfeltthatthedollarhaddepreciatedfarenough.Thetwoeventsshowedthefloatingexchangeratesystemwasmorelikeamanaged(dirty)floatingrateinsteadofafreely(clean)floatingratesystem.Thenominalandrealeffectiveexchangerateofthedollar,1980––2005ThecreationoftheEuroThe1991TreatyofMaastrichtThetimetablefortheintroductionoftheeuro:January1,1999.TheeuroreplacedtheECU.January1,2002.Theeurobeganpubliccirculationalongsidenationalcurrencies.July1,2002.Theeuroformallyreplacedthecurrenciesofparticipatingcountries.ConvergencecriteriaCountriesthatwerequalifiedtoadopteuroshouldmeetconvergencecriteria:Inflationratesshouldbewithin1.5%ofthethreemembersoftheEUwiththelowestinflationratesduringthepreviousyear.Long-terminterestratesshouldbewithin2%ofthethreemembersoftheEUwiththelowestinterestrates.Budgetdeficitsshouldbenohigherthan3%ofgrossdomesticproduct.Governmentdebtshouldbelessthan60%ofgrossdomesticproduct.Only11membercountriesoftheEUmetthecriteriawhentheeurowasintroduced.Nowthereare16countries.Theperformanceoftheeuro(againstthedollar).TheDollar/EuroSpotExchangeRate,1990––2007(MonthlyAverage)CurrencyCrisespost-1990TheMexicanpesocrisisof1995Thepesolost40%ofitsvalueagainstthedollar.Stockmarketfell50%ofitsvalue.TheAsianfinancialstormof1997Thailand:bahtlost50%ofitsvalue.Indonesia:rupiahlost75%ofitsvalue.SouthKorea:wonlost44%ofitsvalue.ThefalloftheRussianrublein1998Russiadefaultedonmorethan$40billionofdebtandwasforcedtoabandonpeggedrate.2002ArgentinapesocrisisArgentinawasforcedtodevaluethepesoandallowedthepesotofloat.ExchangeRateArrangementsTodayAnation’’spolicymakersmaychooseanytypeofexchangeratesystem.Hence,thereisawiderangeofarrangementsinplaceatthistime.ExchangeRateSystemsinPracticeCrawlingpegisanexchangeratesysteminwhichacountrypegsitscurrencytoanothercurrency,butallowstheparityvaluetochangeatregulartimeintervals.Itcanhelpeliminatesomesuddencurrencyattacks.Mexico,Nicaraguaandothersusedtoadoptthecrawlingpegsystem.NicaraguaNicaragua’scrawling-pegexchange-ratearrangementallowsfora1percentmonthlyrateofcrawlofdepreciationofthecordobarelativetotheU.S.dollar.Currencybasketsrefertopegacurrencytoaweightedaverageofanumberofforeigncurrencies.Theweightedaverageofabasketofcurrenciesislikelytobelessvariablethantheexchangerateofasinglecurrency.Currencyboardisanexchangeratesysteminwhichthemonetaryauthorityissuesnotesandcoinsconvertibleintoaforeignanchorcurrencyatatrulyfixedrateandondemand.Thecurrencyboardsuppliescurrencyonthebasisof100%foreignreserves.Forexample,ifthemonetaryauthorityinHongKongissuesoneHongKongdollar,itmusthavetheequivalentU.S.dollar.SupposetheexchangerateisHK$7.50/$,itimpliesthatforeachHongKongdollarissued,themonetaryauthoritymustkeep$0.13(1/7.5).Currencyboardeliminatesthepossibilityofanation’smoneysupplygrowingtoorapidlyandcausinginflation.Dollarization(Euroization)meansthatacountryusethecurrencyofanothernationtoserveaslegaltender.Forsomecountriesitisaneffectivewaytoreduceriskandprotectagainstinflationanddevaluation.Advantagesofthedollarization(1)Avoidspeculativeattacksonthelocalmoney(2)Reducecountryrisk,createpositiveinvestorsentimentandmorestablecapitalmarket.(3)Improvetheglobaleconomybyallowingforeasierintegrationofeconomiesintotheworld’smarket.Disadvantageofdollarization(1)Thecentralbanklosestheabilitytoadministermonetarypolices.(2)Thecentralbanklosesitsabilitytocollect““seigniorage”,theprofitgainedfromissuingmoney.(3)Thecentralbanklosestheroleas