The International Monetary System (??????)

1
The International Monetary System (??????)

• Chapter 3

2
The Content of this Chapter

• 3.1 ??????
• 3.2 ????????
• 3.3 ???????????
• 3.4 ????????

3
PART I. ALTERNATIVE EXCHANGE RATE SYSTEMS

• I. FIVE MARKET MECHANISMS
• A. Freely Floating (Clean Float)
• ????/????
• 1. Market forces of supply and demand
  determine rates.
• 2. Forces influenced by
• a. price levels
• b. interest rates
• c. economic growth
• 3. Rates fluctuate over time randomly.

4
ALTERNATIVE EXCHANGE RATE SYSTEMS

• B. Managed Float (Dirty Float)
• ????/????
• 1. Market forces set rates unless excess
  volatility occurs.
• 2. Then, central bank determines rate.

5
ALTERNATIVE EXCHANGE RATE SYSTEMS

• C. Target-Zone Arrangement?????
• 1. Rate Determination
• a. Market forces constrained to upper and
  lower range of rates.
• b. Members to the arrangement adjust their
  national economic policies to maintain
  target.
• ???????????,???????????????????????????????
• ?????????????????

6
ALTERNATIVE EXCHANGE RATE SYSTEMS

• D. Fixed Rate System??????
• 1. Rate determination
• a. Government maintains target rates.
• b. If rates are threatened, central banks
  buy/sell currency.
• c. Monetary policies coordinated.
• ?????????????,??????????????????????????????
• ?????????????????

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ALTERNATIVE EXCHANGE RATE SYSTEMS??????

• 2. Some Government Controls
• a. On global portfolio investments.
• b. Ceilings on direct foreign direct
  insurance.
• c. Import restrictions.

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(No Transcript)
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ALTERNATIVE EXCHANGE RATE SYSTEMS

• E. Current System????
• 1. A hybrid system
• a. Major currencies use
• freely-floating method
• b. Others move in and out
• of various fixed-rate systems.
• ?????????????
• ????????????????????

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PART II. A BRIEF HISTORY OF THE INTERNATIONAL
MONETARY SYSTEM

• I. THE USE OF GOLD
• A. Desirable properties
• B. In short run High production costs limit
  short-run changes.
• C. In long run Commodity money insures
  stability.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• II. The Classical Gold Standard???????
• (1821-1914)
• A. Major currencies on gold standard.
• 1. Involved commitment by nations to fix
  the price of domestic currency in terms of a
  specific amount of gold.

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???????

• ???1880-1914??
• ??????????,????????????????????,???????
• ????????????????????,?????????????????????????
• ???????????????????????
• ?????????,???????????????????????

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• 2. Maintenance involved the buying
  and selling of gold at that price.
• 3. Disturbances in Price Levels
• Would be offset by the price- specie-flow
  mechanism.
• specie refers to gold coins

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??-??-????
?? 3.7 ??-??-????
15
A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• a. Price-specie-flow mechanism
• had automatic adjustments
• 1.) When a balance of payments surplus led
  to a gold inflow
• 2.) Gold inflow led to higher prices which
  reduced surplus
• 3.) Gold outflow led to lower prices and
  increased surplus.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• III. The Gold Exchange Standard???? (1925-1931)
  
• A. Only U.S. and Britain allowed to hold
  gold reserves.
• B. Other countries could hold both
  gold, dollars or pound reserves.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• C. Currencies devalued in 1931
• - led to trade wars.
• 1931?????,???????????(beggar-thy-neighbor
  devaluations)
• D. Bretton Woods Conference
• (1944????????))
• - called in order to avoid future
  protectionist and destructive economic
  policies

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• V. The Bretton Woods System (1946-1971)
• ???????
• 1. U.S. was key currency
• valued at 1 - 1/35 oz. of gold.
• 2. All currencies linked to that price in a
  fixed rate system.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• 3. Exchange rates allowed to fluctuate by 1
  above or below initially set rates.
• B. Collapse, 1971
• 1. Causes
• a. U.S. high inflation rate
• b. U.S. depreciated sharply.

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???????

• 19461971??
• ?????????????,???????????????
• ??????????35???
• ?????????1?????????
• ??
• ?????????????????????
• ?????????????

21
??????????

• ??
• ????????????
• ????-????????????-????????????????????
• ????
• 1971?12???????(Smithsonian Agreement)
• ?????1/38?????
• 1973??????????

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• V. Post-Bretton Woods System (1971-Present)
• A. Smithsonian Agreement, 1971
• US devalued to 1/38 oz. of gold.
• By 1973 World on a freely floating
  exchange rate system.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• B. OPEC and the Oil Crisis (1973-1974)
• 1. OPEC raised oil prices four fold
• 2. Exchange rate turmoil resulted
• 3. Caused OPEC nations to earn
• large surplus B-O-P.
• 4. Surpluses recycled to debtor nations
  which set up debt crisis of 1980s.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• C. Dollar Crisis (1977-78)
• 1. U.S. B-O-P difficulties
• 2. Result of inconsistent monetary policy in
  U.S.
• 3. Dollar value falls as confidence shrinks.
• ??????????????
• ?????????????,????????????????
• 1979?10?6???????,??????,??????

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• D. The Rising Dollar (1980-85)
• 1. U.S. inflation subsides as the Fed raises
  interest rates
• 2. Rising rates attracts global capital to
  U.S.
• 3. Result Dollar value rises.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• E. The Sinking Dollar(1985-87)
• 1. Dollar revaluated slowly downward
• 2. Plaza Agreement ????(1985) G-5 agree to
  depress US further.

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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY
SYSTEM

• 3. Louvre Agreement?????(1987) G-7 agree to
  support the falling US.
• F. Recent History (1988-Present)
• 1. 1988 US stabilized
• 2. Post-1991 Confidence resulted in stronger
  dollar
• 3. 1993-1995 Dollar value falls
• ??25??,???????????????????????

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PART III.THE EUROPEAN MONETARY SYSTEM?????????

• I. INTRODUCTION
• A. The European Monetary System (EMS)
• 1. A target-zone method (1979)
• 2. Close macroeconomic policy
• coordination required.

29
THE EUROPEAN MONETARY SYSTEM

• B. EMS Objective
• to provide exchange rate stability to all
  members by holding exchange rates within
  specified limits.

30
THE EUROPEAN MONETARY SYSTEM

• C. European Currency Unit (ECU)??????
• A cocktail of European currencies with
  specified weights as the unit of account.
• 1. Exchange rate mechanism (ERM)????
• each member determines mutually agreed
  upon central cross rate for its currency.

31
THE EUROPEAN MONETARY SYSTEM

• 2. Member Pledge
• To keep within 15 margin above or below the
  central rate.
• D. EMS ups and downs
• 1. Foreign exchange interventions failed due
  to lack of support by coordinated monetary
  policies.

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??????(EMS) 2/2

• ????(ERM)
• ?EMS????????????????????,?????????
• ??????????????????????15???

33
THE EUROPEAN MONETARY SYSTEM

• 2. Currency Crisis of Sept. 1992
• a. System broke down
• b. Britain and Italy forced to
• withdraw from EMS.
• 1992?????????????
• G. Failure of the EMS
• members allowed political priorities
• to dominate exchange rate policies.

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1992?????? 1/2

• ??
• ??????????
• ?????????????????????????
• ??????
• 1993?7?31?1993?8?1?
• ???????????????????????

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1992?????? 2/2

• ????
• ??????????????
• ??????????????,??????????????

36
THE EUROPEAN MONETARY SYSTEM

• H. Maastricht Treaty??????
• 1. Called for Monetary Union by 1999 (moved
  to 2002).
• 2. Established a single currency the euro
• 3. Calls for creation of a single central EU
  bank.
• 4. Adopts tough fiscal standards.

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??????

• ?????????????(monetary union)?
• ???????????,?????????????????,??(euro)????
• ??1999.1.1??
• 2002.1.1????????
• ????????????????????????????????????????????

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THE EUROPEAN MONETARY SYSTEM

• I. Costs / Benefits of A Single Currency
• A. Benefits
• 1. Reduces cost of doing business.
• 2. Reduces exchange rate risk
• B. Costs
• 1. Lack of national monetary flexibility.

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EMU???

• ???????????????????
• ????????????
• ???????????????????????,?????????????
• EMU????????,???ECB????????????????????,?????

40
?????
?? 3.13 ???????????
41
3.4 ????????
42
1990???????????

• 19941995?????
• 1997??????
• 1998?????
• 19981999????

43
???????

• ????
• ????
• ??????
• ????????????????

44
????????? 1/2

• ????
• Milton Friedman?Allen Meltzer????????,????????????
  ?????????????,?????????????,IMF??????

45
????????? 2/2

• ????????
• ??????
• ????
• ???????????
• ???????

46
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