Understanding the International Monetary System
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Transcript of Understanding the International Monetary System
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Understanding the Understanding the International Monetary International Monetary
SystemSystem
Chapter 5Chapter 5
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Current TrendsCurrent Trends
Post-WWIIPost-WWII Dollar’s valueDollar’s value Convertible currenciesConvertible currencies
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Gold Standard HistoryGold Standard History
The Gold MarketThe Gold Market v. platinum v. diamondv. platinum v. diamond
Gold StandardGold Standard Currency per ounce of goldCurrency per ounce of gold
Return to gold standard?Return to gold standard? Why?Why? Why not?Why not?
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Gold Standard HistoryGold Standard History
Bretton WoodsBretton Woods Established IMFEstablished IMF Established World BankEstablished World Bank Established gold exchange standardEstablished gold exchange standard Decided stable exchange rates betterDecided stable exchange rates better Dollar became central reserve assetDollar became central reserve asset
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International Monetary FundInternational Monetary Fund
ObjectiveObjective Works with UNWorks with UN Greater Power?Greater Power?
Film surveillanceFilm surveillance Two methodsTwo methods
G-8 CountriesG-8 Countries Conditionality and Cooperation with Conditionality and Cooperation with
World BankWorld Bank
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World BankWorld Bank
Multilateral development banksMultilateral development banks Roles of developing and developed Roles of developing and developed
countriescountries World BankWorld Bank
$16 billion in loans annually$16 billion in loans annually Hard loansHard loans
Encourage investorsEncourage investors
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World BankWorld Bank
International Finance CorporationInternational Finance Corporation Investment bankerInvestment banker Favors joint venturesFavors joint ventures Create local capital marketsCreate local capital markets
International Development International Development AssociationAssociation Soft loansSoft loans
Why?Why?
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World BankWorld Bank
Multilateral Investment GuaranteeMultilateral Investment Guarantee 152 countries 152 countries $30 billion in private investment in 70 $30 billion in private investment in 70
developing countriesdeveloping countries Capacity building and advisory servicesCapacity building and advisory services
International Center for Settlement of International Center for Settlement of Investment DisputesInvestment Disputes Advisory and research servicesAdvisory and research services
Problems with World BankProblems with World Bank
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World BankWorld Bank
Other Multilateral BanksOther Multilateral Banks African Development BankAfrican Development Bank
DisorganizationDisorganization Lack of fundsLack of funds
Asian Development BankAsian Development Bank Lack of fundsLack of funds
European Bank for Reconstruction and European Bank for Reconstruction and DevelopmentDevelopment
Who does it help?Who does it help?
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World BankWorld Bank
Other Multilateral BanksOther Multilateral Banks Inter-American Development BankInter-American Development Bank
U.S. and 45 other countriesU.S. and 45 other countries 1998- Lending is $10 billion1998- Lending is $10 billion
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Bank for International Bank for International SettlementsSettlements
Location: SwitzerlandLocation: Switzerland Anonymous coverAnonymous cover Four functionsFour functions
Forum for international monetary Forum for international monetary cooperationcooperation
Center for researchCenter for research Banker for central banksBanker for central banks Agent for various financial arrangementsAgent for various financial arrangements
U.S. joined in 1994U.S. joined in 1994
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Balance of PaymentsBalance of Payments
Deficits- U.S.Deficits- U.S. Could be due to inflationCould be due to inflation
Market measuresMarket measures Nonmarket measuresNonmarket measures
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Balance of PaymentsBalance of Payments
Current AccountCurrent Account Goods/merchandiseGoods/merchandise ServicesServices Unilateral transfersUnilateral transfers
Capital AccountCapital Account Direct investmentDirect investment Portfolio investmentPortfolio investment Short-term capital flowsShort-term capital flows
Official Reserves AccountOfficial Reserves Account
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Balance of PaymentsBalance of Payments
Temporary DisequilibriumTemporary Disequilibrium Monetary policiesMonetary policies Fiscal policiesFiscal policies
Fundamental DisequilibriumFundamental Disequilibrium
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History of U.S. and Gold History of U.S. and Gold StandardStandard
U.S. Dollar became over-valuedU.S. Dollar became over-valued Why not de-value the currency?Why not de-value the currency?
Central banksCentral banks Gold Exchange StandardGold Exchange Standard
$35/oz. of gold$35/oz. of gold ResultsResults
1958-1971- U.S ran deficit1958-1971- U.S ran deficit Dichotomy of the situationDichotomy of the situation
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History of U.S. and Gold History of U.S. and Gold StandardStandard
August 1971August 1971 December 1971 and February 1973December 1971 and February 1973
Fixed currency exchange ratesFixed currency exchange rates Floating currency exchange ratesFloating currency exchange rates
Types of Currency FloatsTypes of Currency Floats Free (clean)Free (clean) Managed (dirty)Managed (dirty)
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History of U.S. and Gold History of U.S. and Gold StandardStandard
1981-851981-85 U.S. runs a deficitU.S. runs a deficit
Why?Why?
Sept. 1985Sept. 1985 Group of FiveGroup of Five
Today- Group of EightToday- Group of Eight Government reserves todayGovernment reserves today
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Currency AreasCurrency Areas Currencies are floatingCurrencies are floating
SnakeSnake Mid-1970’sMid-1970’s EuropeEurope What was it?What was it?
Experience with FloatingExperience with Floating Hard to peg Hard to peg System today- has it held?System today- has it held?
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Forecasting Float DirectionForecasting Float Direction
Purchasing Power ParityPurchasing Power Parity Big Mac IndexBig Mac Index Starbucks IndexStarbucks Index
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Money Markets and Foreign Money Markets and Foreign ExchangesExchanges
Money MarketsMoney Markets Which market is the largest?Which market is the largest? Grew until 2001Grew until 2001
Why did it stop?Why did it stop? Asian currenciesAsian currencies Most traded currenciesMost traded currencies
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SDRsSDRs
Special Drawing RightsSpecial Drawing Rights How is it calculated?How is it calculated? UsesUses
Remains stableRemains stable HoldersHolders SDRs as central reserve assetsSDRs as central reserve assets
Replace currencies and gold?Replace currencies and gold? ReasonsReasons
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European Monetary SystemEuropean Monetary System
European Monetary UnionEuropean Monetary Union 19791979 European Monetary Cooperation FundEuropean Monetary Cooperation Fund 1991- Maastricht1991- Maastricht
European Central BankEuropean Central Bank European Currency UnitEuropean Currency Unit
Why did it work when SDR failed?Why did it work when SDR failed? EuroEuro
Transition to EuroTransition to Euro CirculationCirculation European Central BankEuropean Central Bank
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