Chapter 1 Evolution of the International Monetary System 国际金融专业双语教学课件.ppt

1、Chapter 1: Evolution of the International Monetary System,History of the international monetary system,International gold standard (1880-1914) Characteristics: In the case of a gold standard, Currencies are valued in gold, and all currencies that are pegged to gold are therefore automatically linked

2、 to each other, The price is maintained because the government stands ready to buy and sell gold to all customers at the pegged value.,International Gold Standard,Price-Specie-Flow Mechanism (David Hume) Premises: I. Theres no restraint on the buying and selling of gold within countries, and gold mo

3、ves freely between countries. II.The money supply is allow to change in response to the change in gold holding in a country. III.Prices and wages are assumed to be flexible upward and downward.,outflow of reduction prices Import gold of Ms fall Export BOP BOP deficit surplus Import prices Increase i

4、nflow of Export rise of Ms gold MV=PQ,Limitations of the gold standard,The automatic adjustment mechanism needs the governments abide by “the rules of game”. Flexibility in wages and prices is obviously required for this mechanism to work. The mechanism has the material basis that global gold output

5、s could meet economy developments need.,break-down of the gold standard,The international gold standard broke down with the advent of the first world war.,break-down of the gold standard,In the 1920s, countries permitted a great deal of exchange rate flexibility, and there has been controversy over

6、the extent to which this international monetary system was, in fact, efficient. In the middle of decade, Britain attempted to restore the gold standard, adopting the old prewar par value of the pound. With the tremendous decline in economic activity in the 1930s, payments difficulties had been depre

7、ciated and restrictive trade policies had also been instituted. These various actions led to great reductions in the volume and value of international trade.,History of the International Monetary System,The Bretton Woods System As World War II was drawing to a close, the historic united nations mone

8、tary and financial conference was held in Bretton Woods, New Hampshire in 1944. Then the new international monetary system- The Bretton Woods System was built.,History of the International Monetary System,Content The dollar was defined by US as having a value of 1/35 of an ounce of gold, other count

9、ries then defined their currencies values in terms of the dollar. The Bretton Woods Agreement created two new institutions the International Monetary Fund (IMF) and the World Bank (IBRD). The International Bank for Reconstruction and Development (World Bank) helped fund post-war reconstruction and h

10、as since then supported general economic development. Exchange control on current account (C/A) has been reversed. But most countries still limit international capital flow.,History of the International Monetary System,The International Monetary Fund is a key institution in the new international mon

11、etary system and was created to: Help countries defend their currencies against cyclical, seasonal, or random occurrences Assist countries having structural trade problems if they promise to take adequate steps to correct these problems Help preserve relatively free trade and payment in the world ec

12、onomy,The International Monetary Fund,Current membership: 184 countries Staff: approximately 2,680 from 139 countries Total Quotas: $312 billion (as of 8/31/05) Loans outstanding: $71 billion to 82 countries, of which $10 billion to 59 on concessional terms (as of 8/31/05),History of the Internation

13、al Monetary System,Despite this seeming success, Some important problems emerged in the Bretton Woods System. Defects of The Bretton Woods System Adequacy of reserves problem or liquidity problem. when world trade is growing rapidly, it is likely the size of payments imbalances will grow in absolute

14、 terms, Hence, there is an increased need for reserves to finance BOP deficits. But the supply of gold in the world economy was growing at a rate of only 1 to 1.5% per year while trade in the 1960s was growing at a rate of close to 7% per year. Confidence problem. “Triffin Dilemma”, that is, the dol

15、lar is the linchpin of the system. to meet the development of global economy need, USA should export dollar though BOP deficit. But the increase of dollar supply would make people lost confidence on the value of dollar.,Defects of The Bretton Woods System,Adjustment problem. This refers to the fact

16、that in the actual operation of the Bretton Woods, individual countries had prolonged BOP deficits or surpluses. There didnt seem to be an effective adjustment mechanism, since automatic forces were not removing the imbalances. countries directed monetary and fiscal policies toward internal targets

17、rather than external targets.,History of the International Monetary System,Eventually, the heavy overhang of dollars held by foreigners resulted in a lack of confidence in the ability of the US to met its commitment to convert dollars to gold The lack of confidence forced President Richard Nixon to

18、suspend official purchases or sales of gold by the US Treasury on August 15, 1971 This resulted in subsequent devaluations of the dollar Most currencies were allowed to float to levels determined by market forces as of March, 1973,History of the International Monetary System,The Jamaica system (1976

19、 Present) Since 1976, exchange rates have become much more volatile and less predictable than they were during the “fixed” period. contents Each member country was free to adopt its own preferred exchange rate arrangements. The role of gold was downgraded in the international monetary system. The ro

20、le of the SDR was to be enhanced. The IMF was to maintain surveillance of exchange rate behavior.,Emerging Markets and Regime Choices,A currency board exists when a countrys central bank commits to back its monetary base its money supply entirely with foreign reserves at all times. This means that a unit of domestic currency cannot be introduced into the economy w