ch03国际金融.ppt

1、Exchange Rate Systems,Past to Present,INTERNATIONAL MONETARY AND FINANCIAL ECONOMICS,Third Edition,Yanfang Liu,Copyright South-Western, a division of Thomson Learning. All rights reserved.,Fundamental issues,What is an exchange-rate system? How does a gold standard constitute an exchange-rate system

2、? What was the Bretton woods system of “pegged” exchange rates? What are crawling-peg and basket-peg exchange-rate arrangements? What is a currency board, and what is dollarization? Which is best: a fixed- or flexible- exchange-rate arrangement?,2,3,Exchange-Rate Systems,Concepts Monetary Order: A s

3、et of laws and regulations that establishes the framework within which individuals conduct and settle transactions. A national money could be a commodity money, a commodity-backed money, or fiat money,4,Exchange-Rate Systems,Exchange-Rate System: A set of rules that determine the inter- national val

4、ue of a nations currency. Next we will examine the history of three important Exchange-rate system: The gold standard The Bretton Woods system The post- Bretton woods floating-rate system,5,The Gold Standard,Convertibility: The ability to freely exchange a currency for a reserve commodity or reserve

5、 currency.,6,The Gold Standard,History Came into effect in the mid-1870s when most of the major economies unilaterally pegged to gold. Nations fixed the value of their currency relative to gold via a mint parity rate.,7,The Gold Standard,Established the convertibility of a currency for gold. Pegging

6、 the value of each currency to gold, established an exchange rate system by indirectly establishing exchange rates. The mint parity rates could be used to determine the exchange rate.,8,Gold Standard as an Exchange-Rate System,Pegging the value of each currency to gold established an exchange rate s

7、ystem. The mint parity rates determined the exchange value between two currencies.,9,Performance of the Gold Standard,Positive aspects of a Gold Standard If the supply of gold is rather constant, The gold standard promotes long-run stability of nations money stock and long-run stability of real outp

8、ut, prices, and the exchange rate. It doesnt require a central bank. An official authority can maintain the ratio of money stock to gold reserves.,10,Performance of the Gold Standard,Negative aspects of a Gold Standard It can be very costly to maintain a gold standard because of significant resource

9、 costs, such as mining and transportation costs. The political costs of maintaining the gold standard became too significant for nations such as the United Kingdom. By 1936 most nations had left the gold standard.,11,The Economic Environment of the Gold Standard,Economic environment of the 18701913:

10、 A very peaceful period; There was virtually free capital mobility among nations; London was the center of the worlds money and capital markets. These latter two characteristics enabled the efficient and smooth functioning of the gold standard.,12,The Collapse of the Gold Standard,In 1914,after the

11、beginning of World War,many European nations suspended convertibility of their currencies into gold.For all practical purposes,the gold standard was no longer in effect,and exchange values between currencies did fluctuate.,13,The Bretton Woods System,14,The Bretton Woods Agreement,The 1944 conferenc

12、e was originally named the “International Monetary and Financial Conference of the United and Associated Nations,” but became better known as the Bretton Woods Conference.,15,The Bretton Woods Agreement,This conference established: The International Monetary Fund The International Bank for Reconstru

13、ction and Development, or “World Bank” The General Agreement on Tariffs and Trade, or “GATT” The Bretton Woods Exchange Rate System,16,The Bretton Woods Agreement,The International Monetary Fund A multinational organization of more than 180 member nations that seeks to encourage global growth. The I

14、MF attempts to promote international monetary cooperation effective exchange rate arrangements,17,The Bretton Woods Agreement,The IMF provides temporary and long-term financial for countries experiencing balance-of-payments difficulties surveillance of macroeconomic conditions and policies.,18,The B

15、retton Woods Exchange-Rate System,The value of the dollar was pegged to gold and the dollar was convertible to gold at the mint parity rate. A pegged exchange rate system in which a country pegs the value of its currency to the currency of another nation. In practice a dollar-exchange-rate system as

16、 nations pegged to the dollar and freely exchanged the domestic currency for the dollar at the parity rate.,The Bretton Woods Exchange-Rate System,The Bretton Woods system was one of pegged, but adjustable, exchange rates. Because the US DOLLAR was the anchor the system, it was a dollar-standard exc

17、hange-rate system, which is a system in which nations peg the value of their currencies to the dollar and freely convert their currencies for the dollar at the pegged value.,19,Each country could choose to state the par value of its currency in terms of gold, or establish a par value for its currenc

18、y relative to the US dollar. Each country would stand ready to buy and sell US dollar in the foreign exchange market to maintain the exchange value of its currency within 1 percent, on either side, of the par value.,20,Although each country pegged its currency,it could devalue or revalue its currenc

19、y with the approval the IMF. UNDER THE BRETTON WOODS SYSTEM, US DOLLAR is the primary reserve currency, used to settle international debts.,21,22,Performance of the Bretton Wood System,Because the United States was the only country committed to converting its domestic currency for gold, the system h

20、ad an inadvertent weakness. Even if the United States followed an anti-inflationary monetary policy, the possibility of a run on the dollar,in which traders and official foreign agencies seek to convert the dollar for gold en masse,existed.,23,Performance of the Bretton Wood System,Because there was

21、 a limit to the U.S.gold stock,the dollar would not increase in value relative to gold,but it could always decrease in value. This situation made the dollar the traget of foreign exchange speculators,as well as nationalistic politicians who opposed the dollar as the standard of the worlds exchange-r

22、ate system.,24,The Gold Pool,In 1960,the United States and many of the European economies collectively began to intervene in the gold market.The purpose of these interventions was to maintain the dollar price of gold and to ensure the stability of the exchange-rate system.This coordinated arrangemen

23、t became known as the gold pool. The gold pool was abandoned in 1968.,25,The U.S. Balance on Goods and Services,The U.S. balance on goods and services shifted to a surprising deficit in 1971. These deficits supported speculations that the dollar was overvalued. Because of massive gold outflows from

24、the United States, President Nixon suspended convertibility of the dollar in August 1971. This ended the Bretton Woods System.,The flexible-exchange-rate system,A de facto system of floating, or flexible exchange rates emerged. It is an exchange rate system whereby a nation allows market forces to d

25、etermine the international value of its currency.,26,27,Economic Summits and a New Order,November 1975 French President, Valery Giscard dEstaing hosts the first economic summit. Invited France, US, UK, Germany, Japan (G5). Italy added to represent the EU (G6). Agreed to a system of flexible exchange

26、 rates and that countries would intervene when needed to ensure stability. Member nations of the IMF completed the negotiations, known as the Jamaica Accords, in Jamaica in 1976.,28,Performance of the Floating-Rate System,Between 1981and 1985, the U.S. dollar appreciated relative to a weighted-avera

27、ge value of several major currencies. Within two years, this appreciation had reversed.,29,Plaza Agreement and the Louvre Accord,The “Plaza Agreement” refers to a September 1985 meeting of the G5 central bankers and finance ministers. The G5 bankers and ministers had been meeting quietly for a numbe

28、r of years. Following this meeting they announced a belief that the dollar was overvalued and that the nations would intervene on a coordinated basis to drive down the value of the dollar.,30,Plaza Agreement and the Louvre Accord,The “Louvre Accord” refers to a February 1987 meeting of the G7 (Italy

29、 and Canada) central bankers and finance ministers. Following the meeting it was announced that the ministers believed that the dollar was now “consistent with economic fundamentals.” They agreed to intervene only when required to ensure stability. A managed or dirty float system emerged from this a

30、ccord.,31,The Euro,The euro was launched in January 1999. On its first day of trading it reached a high of 1.19 ($/). During the next two years it depreciated relative to the dollar. The euro eventually began appreciating in 2002.,32,Other forms of Exchange-Rate Arrangements Today,Since the break-up

31、 of Bretten Wood system,nations have adopted a wide variety of exchange-rate arrangements.,33,Current Foreign Exchange-Rate Arrangements,A nations policymakers may choose any type of exchange rate system. Hence, there is a wide range of arrangements in place at this time.,34,Crawling Peg,Parity valu

32、e is changed on a periodic basis. Crawl is typically designed to compensate for differences between the economic performance of the pegging country and the country being pegged to. Bands may be established around the crawling parity rate. Bands may be symmetric or asymmetric. Examples are Boliva, Co

33、sta Rica, and Nicaragua.,35,Currency Basket Peg,The most common argument for pegging ones currency is that reducing exchange-rate volatility and uncertainty may yield gains in economic efficiency. For this same reason,a nation might choose to peg its currency to a weighted average of a number of for

34、eign currencies, known as a currency-baskets peg.,36,Currency Basket Peg,Currency is pegged to a “basket” currencies. Parity value is the weighted average of a basket of currencies in various quantities. Each currency has an implicit weight assigned to it. Provides some degree of flexibility against

35、 individual currencies. Examples are Kuwait and Latvia.,37,Selecting a Currency Baskets,The choice of currency to be included in the basket is similar to the choice made in constructing an effective exchange rate. A basket typically includes selected currencies most prominent in the nations internat

36、ional trade,capital flows,or international debt settlement. The basket assign a weight to each currency,similar to the construction of an effective exchange rate.The weights sum to unity as well.The choice of weights reflects the relative importance of each currency in the nations international tran

37、sactions.,38,Managing the Currency Baskets,Under a pegged-exchange-rate arrangment,the nations monerary authority maintains the exchange rate between the domestic currency and the currency that the nation is pegging to.A currency-basket arrangment introduces an interesting wrinkle.The authority must

38、 concentrate on the exchang rate between the domestic currency and the currencies included in the currency basket and the cross rate between the currencies in the basket. If these cross rates change,the monetary authority must take action,either depreciating or appreciating the nations currency so a

39、s to maintain the currency-basket value.,39,Independent Currency Authorities,Currency Board Establishes and maintains a hard peg between the domestic currency and another currency. Issues domestic notes. Notes issued depend on the value of the exchange rate and the amount of foreign reserves. Hence,

40、 monetary base is determined by the stock of foreign reserves.,40,Independent Currency Authorities,Replaces central bank Cannot hold domestic debt. Not a lender of last resort Does not set reserve requirements Theoretically shielded from political pressure. Examples are Hong Kong, Estonia, Lithuania

41、, and Argentina.,41,Dollarization,Dollarization is the replacement of the domestic currency with the currency of another nation. Two possible problems are the loss of seigniorage revenues and the loss of discretionary monetary policy. Seigniorage is the revenue created through the manufacturing of m

42、oney, and can be quite important to developing nations. Examples are Panama, El Salvador and Ecuador.,42,Fixed or Floating Exchange Rates,Currency value is determined in the interbank market. Monetary authority may intervene periodically to maintain stability without any preannounced path for the currency value. Sometimes referred to as a “dirty float.” Examples are Indonesia and India.,43,Fixed or Floating Exchange Rates,Value of domestic currency is determined in the foreign exchange market. Forc