國(guó)際金融學(xué)課件：Chapter 9 The International Monetary System

1、9The International Monetary SystemChapter objectiveUnderstand the development of the international monetary system and different exchange rate system including some experiences.Outline1.Introduction2.Evolution of the International Monetary System3. Asian Currency Crisis4.The Exchange Rate System1.In

2、troductionThe international monetary system can be defined as the institutional framework within which international payments are made, movements of capital are accommodated, and exchange rates among currencies are determined.It is a complex whole of agreements,roles, institutions, mechanisms, and p

3、olicies regarding exchange rates, international payments , and the flow of capital.It has evolved over time and will continue to do so in the future as the fundamental business and political conditions underlying the world economy continue to shift.1.Introduction1.IntroductionA good or idea internat

4、ional monetary system should provide:1)liquidity: the amount of international reserve assets available to settle temporary balance-of-payments disequilibria. To correct BP without deflating or inflating.1.Introduction2)adjustment:the process by which balance-of-payment disequilibria are corrected. T

5、o minimize the cost of and the time required for adjustment.3)Confidence:the knowledge that adjustment mechanism is working adequately and the international reserves will retain their absolute and relative values.1.IntroductionIn other words ,a good IMS should able to provide the world economy with

6、sufficient monetary reserves to support the growth of international trade and investment. an efficient mechanism that restores the balance-of-payments equilibrium wherever it is disturbed.A safeguard to prevent crises of confidence in the system that result in panicked flights from one reserve asset

7、 to another.2.Evolution of the international monetary system(1)Bimetallism:before 1875(2)Classical gold standard:1875-1914(3)Interwar period:1915-1944(4)Bretton Woods system :1945-1972(5)Flexible exchange rate regime:since1973(1).Bimetallism:Before1875A double standard in that free coinage was maint

8、ained for both gold and silver. Both gold and silver were used as international means of payment and that the exchange rates among currencies were determined by either gold or silver contents.The exchange ratio between the two metals was fixed officially, only the abundant metal was used as money, d

9、riving more scarce metal out of circulation. “Bad” money drives out “good” money.(2).Classic Gold Standard:1875-1914During this period London became the center of the international financial system.Exist:1)gold alone is assured of unrestricted coinage2)there is two-way convertibility between gold an

10、d national currencies at a stable ratio3)gold may be freely exported or importedThe domestic money stock should rise and fall as gold flows in and out of the country.Under the gold standard, the exchange rate between the two currencies will be determined by their gold content. 1ounce=6 1ounce=12 fra

11、ncs 1=2Fr The pound and the franc remain the pegged to gold at given prices,the exchange rate between the two currencies will remain stable.(2).Classic Gold Standard:1875-1914Under this standard, international imbalances of payment will also be corrected automatically.The adjustment mechanism is ref

12、erred to as the price-specie-flow mechanism, which is attributed to David Hume,a Scottish philosopher.Since each nations money supply consisted of either gold itself or paper currency back by gold,the money supply would fall in the deficit nation and rise in the surplus nation. (2).Classic Gold Stan

13、dard:1875-1914Cause internal prices to fall in the deficit nation and rise in the surplus one. Result: the export of the deficit nation would be encouraged and its import discouraged until its balance-of payments deficit was eliminated. The opposite would occur in the surplus nation.If gold is used

14、as sole international means of payment,then countriesbalance of payments will be regulated automatically via the movements of gold.(2).Classic Gold Standard:1875-1914 Shortcomings:1)the world economy can face deflationary pressures2)whenever the government finds it politically necessary to pursue na

15、tional objectives that are inconsistent with maintaining the gold standard , it can abandon the gold standard that has no mechanism to compel each major country to abide by the rules of the game.(2).Classic Gold Standard:1875-1914(3).Interwar Period:1915-1944World War ended the gold standard in Aug.

16、 1914,as major countries such as Britain,France, Germany suspended redemption of banknotes in gold and imposed embargoes on gold export.As major countries began to recover from the war and stabilized their economies,they attempted to restore the gold standard.The U.S replaced Great Britain as the do

17、minant financial power, and with only mild inflation ,was in an effort to restore the gold standard. The international gold standard of the late 1920s was not much more than a faade. Most major countries gave priority to stabilization of domestic economies and systematically followed a policy of ste

18、rilization of gold by matching inflows and outflows of the gold respectively with reductions and increases in domestic money and credit.(3).Interwar Period:1915-1944Following the stock market crash and the onset of the Great Depression in 1929, Britain experienced a massive outflow of gold and their

19、 gold reserves continued to fall to the point where it was impossible to maintain the gold standard. In 1931,the British government suspended gold payments and let the pound float. Canada,Sweden,Austria,Japan also followed. The U.S got off gold in April 1933.Paper standards came into being when the

20、gold standard was abandoned.(3).Interwar Period:1915-1944(4).Bretton Woods System:1945-1972In July 1944, representatives of 44 nations gathered at Bretton Woods, New Hampshire,to discuss and design the postwar international monetary system.The Articles of Agreement of the International Monetary Fund

21、(IMF), IMF embodied an explicit set of rules about the conduct of international monetary policies and was responsible for enforcing these rules.The International Bank for Reconstruction and Development (IBRD),the World Bank,that was chiefly responsible for financing individual development projects.T

22、he British delegates proposed an international clearing union that would create an internationa reserve asset called “bancor”.The American delegates proposed a currency pool to which member countries would make contributions and from which they can might borrow to tide themselves over during shot-te

23、rm balance-of-payments deficits. (4).Bretton Woods SystemThe American proposal was largely incorporated into the Articles of the Agreement of the IMF.Under the Bretton Woods System, each country established a par value in relation to the U.S dollar,which was pegged at $35 per ounce. Each country was

24、 responsible for maintaining their exchange rate within 1% of the adopted par value by buying or selling foreign exchanges as necessary.(4).Bretton Woods SystemThe Bretton Woods system can be described as a dollar-based gold-exchange standard, because the U.S dollar was the only currency that was fu

25、lly convertible to gold.British German French pound mark francPar value U.S dollar pegged at $35/oz. gold(4).Bretton Woods System1)Advantage of the gold-exchange system:Not only gold but also foreign exchanges as an international means of paymentEarn interest on the foreign exchange holdings, gold h

26、oldings yield no returnsSave transaction costs associated with transporting gold across countries(4).Bretton Woods System2)Triffin paradoxThe reserve-currency country should run balance-of-payments deficits to supply reserves,but if such deficits are large and persistent,they can lead to a crisis of

27、 confidence in the reserve currency itself,causing the downfall of the system.(4).Bretton Woods System3)SDRsThe creation of a new reserve asset,special drawing rights,by IMF in1970. It is a basket currency comprising major individual currencies,was allocated to the members of the IMF,who could then

28、use it for transactions among themselves or with the IMF. Besides gold and foreign exchanges, counties could use SDR to make international payment.(4).Bretton Woods SystemIt is used as a reserve asset and a denomination currency for international transaction.SDR is a “portfolio” of currencies ,its v

29、alue is more stable than that of any individual currency include in the SDR.(4).Bretton Woods System4)Smithsonian AgreementIn the early 1970s,it became clear that the dollar was over-valued,especially to the mark and yen. German and Japanese central banks had to make massive intervention in the fore

30、ign exchange market to maintain their par values, but could not solve the problem. The foundation of the Bretton Woods cracked under the strain.In 1971, the Group of Ten, met at the Smithsonian Institution in Washington,D.C.,reached the Smithsonian Agreement.(4).Bretton Woods Systemthe price of gold

31、 was raised to $38 per ounce; Each of the other countries revalued its currency against the U.S dollar by up to 10%; The band within which the exchange rate were allowed to move was expanded from 1% to 2.25% in either direction.But the devaluation of the dollar was not sufficient to stabilize the si

32、tuation.In Feb.1973 the price of gold was further raised from $38 to $42 per ounce. By march European and Japanese currencies were allowed to float, completing the decline and fall of the Bretton Woods system.(4).Bretton Woods System(5).the Flexible Exchange Rate Regime 1) Jamaica AgreementIn Jan. 1

33、976 the IMF members met in Jamaica and agreed to a new set of rules for the international monetary system. The key elements include:Flexible exchange rates were declared acceptable to the IMF members,and central banks were allowed to intervene in the exchange markets to iron out unwarranted volatili

34、ties.Gold was officially abandoned as an international reserve asset.Half of the IMFs gold holdings were returned to the members and the other were sold to be used to help poor nations.Non-oil-exporting countries and less-developed countries were given great access to IMF funds.The IMF provided assi

35、stance to countries facing balance-of-payments and exchange rate difficulties.But to the member countries on the condition that those countries follow the IMFs macroeconomic policy prescriptions.(4).Bretton Woods System2)in Sept. 1985, Plaza Accord, G-5The dollar to depreciate against most major cur

36、rencies and intervene in the market 3)in Paris in1987, Louvre Accord, G-7Cooperate to achieve greater exchange rate stability, more closely consult and coordinate macroeconomic policiesLouvre Accord marked the inception of the managed-float system.(4).Bretton Woods System2.The Asian Currency Crisis(

37、1)OriginsA weak domestic financial systemFree international capital flowsThe contagion effects of changing market sentiment (panicky)Inconsistent economic policies(2)Lessons Counties first strengthen their domestic financial system and then liberalize.The government should strengthen its system of f

38、inancial-sector regulation and supervision.Banks should be encouraged to base their lending decisions solely on economic merits rather than political considerations.Firms,financial institutions ,and government should be required to provide the public with reliable financial data in a timely fashion.

39、A country should encourage foreign direct investments and equity and long-term bond investments not short-term. As Chile has successfully implemented Tobin tax on the international flow of hot money. A fixed but adjustable exchange rate is problematic in the face of integrated international financia

40、l markets.Trilemma: a fixed exchange rate, free international flows of capital, an independent monetary policy.China and India,capital controls segment their capital markets from the rest of the world.(2)Lessons3.the Exchange Rate System(1)IntroductionArrangements of the exchange rate, the dollar, t

41、he pound, the yen fluctuating against each other ,the majority of the worlds currencies are pegged to single currencies particularly the U.S dollar,the French franc or baskets of currencies such as SDRClassified by the IMF in 1999:48countries including Japan,U.K currencies float,exchange rate determ

42、ined by market force, 25 including the Czech Republic,Singapore adopt some forms of managed floating system 37 have no national currencies,fixed to the euro through the French franc8 including Hong Kong fixed to such hard currencies as the U.S dollar or German markThe remain countries adopted a mixt

43、ure of fixed and floating exchange rate regime.(2).ClassificationFixed exchange rate systemFlexible exchange rate systemAdjustable peg systemCrawling pegs Managed-float system Fixed exchange rate systemThe gold standard is a typical fixed one and the others like EU. The exchange rate can fluctuate a

44、bove and below the parity. Under the gold standard,the exchange rate was determined within the gold points by the forces of demand and supply and was prevented from moving outside the gold points by gold shipments.The tendency of a currency to depreciate past the gold export point was halted by outf

45、lows from the nation. DeficitThe tendency of a currency to appreciate past the gold import point was halted by gold inflows. Surplus gold export point=mint parity +shipping costGold point gold import point= mint parity - shipping costFlexible exchange rate systemUnder truly flexible exchange rate sy

46、stem, a deficit or surplus in the nations balance of payments is automatically corrected by a depreciation or an appreciation of the nations currency,without any government intervention and loss or accumulation of international reserves.Adjustable peg systemIt requires defining the par value and the

47、 allowed band of fluctuation,with the stipulation that the par value will be changed periodically and the currency devalued to correct a balance-of-payments deficit or revalued to correct a surplus.It often invites speculative attack at the time of financial markets. Because some objective rule woul

48、d have to be agreed upon and enforced to determined when the nation must change its par value.Crawling pegs To avoid the disadvantage of relatively large changes in par values and possibly destabilizing speculation.Under this system ,par values are changed by small preannounced amounts or percentage

49、s at frequent and clearly specified intervals ,say ,every month, until the equilibrium exchange rate is reached.Preventing destabilizing speculation by manipulating its short-term interest rate to neutralize any profit resulting from the scheduled change in the exchange rate.Managed floatingUnder th

50、is system ,the nations monetary authorities are entrusted with the responsibility to intervene in foreign exchange markets to smooth out these short-run fluctuations without attempting to affect the long-run trend in exchange rate.Dirty floatingPure floatingBenefits: not only from fixed exchange rat

51、e but also flexible.Difficulties:Monetary authorities may be in no better position than professional speculators, investors and traders to know the long-run trend in exchange rate is.There is still a need for international reserves.Managed floatingWhat proportion of the short-run fluctuation in exch

52、ange rates monetary authorities succeed in depends on what proportion of short-run excess demand for or supply of foreign exchange they absorb. Depending on their willingness to intervene in foreign exchange markets for stabilization purpose and the size of the nations international reserves.The rul

53、es of leaning against the wind are not spelled out precisely.Managed floating(3)Fixed versus flexible exchange rate systemThe key arguments for flexible rates rest on:1)easier external adjustments2)national policy autonomyExternal balance will be achieved automatically.The government does not have t

54、o take policy actions to correct the balance-of-payments disequilibrium.Drawback :exchange rate uncertainty However the firms can hedge exchange rate risk by means of currency forward or options contracts,uncertain exchange rate do not necessarily hamper international trade. Proponents of the fixed

55、exchange rate regime argue that: Eliminating the uncertainty of exchange rate and promote international trade(3)Fixed versus flexible exchange rate systemThe choice between the alternative exchange rate systems is likely involve a trade-off between national policy independence and international econ

56、omic integration. If to pursue respective domestic economic goals, flexible exchange rateIf to promote international economic integration(like EU members Germany and France),fixed exchange rate.(3)Fixed versus flexible exchange rate systemGold standard International monetary systemBretton Woods Syst

57、emManaged-float systemPar valuePrice-specie-flow mechanismSDR Key wordsDiscuss the advantage and disadvantage of the gold standard.What kind of measures would you propose to prevent the recurrence of an Asia-type crisis?Once capital markets are integrated, it is difficult for a country to maintain a

58、 fixed exchange rate. Explain why. Questions and Discussions10European Monetary System and EUChapter objective:Know something about EMS and monetary union including EU, and integration.Outline1.European Monetary System2.the Euro and the European Monetary Union(1)a Brief History of the Euro(2) Benefi

59、ts of Monetary Union(3)Costs of Monetary Union(4)Prospects of the Euro 3.Will it emerge “Asian-Yuan”? 4.Optimum currency area1.European monetary systemSmithsonian Agreement, signed in Dec.1971,the band of exchange rate was 2.25%,EEC a narrower band of 1.125%This scale-down,European version of fixed

60、exchange rate system that arose concurrently with the decline of the Bretton Woods system was called the snake.Stable exchange rates is essential for EEC to adopt the snake for promoting intra-EEC trade and deepen economic integration. European Monetary System (EMS) replaced the snake in1979.Its chi