The International Monetary System 8 -1
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Transcript of The International Monetary System 8 -1
Apa sistem moneter internasional? Menetapkan aturan oleh negara-negara yang nilai dan
pertukaran mata uang mereka Gold Standard (1821-1931)
Negara akan setuju untuk membeli atau menjual mata uang mereka untuk ditukar dengan emasMata uang negara masing-masing memiliki nilai nominal tertentu
Menciptakan sistem kurs tetap, karena setiap kabupaten mengikat nilai mata uangnya dengan emas
Standar emas interupted selama Perang Dunia I, tetapi kemudian dipertahankan sampai tahun 1931 ketika Bank of England memungkinkan pound melayang
Era Bretton Woods Setelah runtuhnya standar emas, banyak
negara berusaha devaluasi mata uang mereka
Negara juga mengembangkan kebijakan perdagangan restriktif
Tarif tinggi pada impor, kuota impor
Problems Since devaluations were only allowed after a long run
of BOP deficits, they could be predicted by speculators and were large
This didn’t really lead to a stable climate for world trade Currencies would remain constant for long periods
and then change drastically, rather than gradual changes
Since the U.S. $ defined the value of gold, the U.S. could not devalue it’s currency
U.S. ran persistent BOP deficits in the 1960s U.S. started running out of reserves to finance BOP
deficits and the system collapsed in 1971 Exchange rates have been under a dirty or managed
float since 1973
Both created by Bretton Woods IMF
Set up to police and manage international monetary system
Countries join the IMF by paying a quota Gives voting power in the IMF Allows borrowing from the IMF (25% of quota) Counts as official reserves of a country
World Bank International Bank for Reconstruction and
Development Owned by 184 member countries Originally formed to finance reconstruction of Europe
from WWII Now to build the economies of developing countries
Provides loans aimed at stimulating economic growth – often infrastructure like highways
Hard loan policy Reasonable expectation that the loan will be repaid
Three other organizations within the World Bank International Development Assoc. (IDA)
Soft loans – signif. risk of no repayment Interest free loans Focus on least developed countries
International Finance Corp (IFC) Debt and equity financing for promising private sector
activities in developing countries Multilateral Investment Guarantee Agency (MIGA)
Insurance for private investors in developing countries for noncommercial risks – politicial risk
Regional Development Banks Focus on specific regions
Advantage of fixed exchange rates Reduced risk to foreign trade
Businesses importing goods may experience higher prices in the future – deprec. of domestic currency
Businesses exporting goods will experience a similar risk – concerned with apprec. of domestic currency
Uncertainty regarding exchange rates could inhibit trade
Qualifier to this advantage – exchange rates were really not very stable under Bretton Woods
Disadvantage of fixed exchange rates LACK OF CONTROL OVER DOMESTIC
ECONOMY BOP deficits or surpluses adjust with S and D
rather than exchange rates Explain under gold standard Explain under Bretton Woods
The institutional arrangements that countries adopt to govern exchange rates.
Dollar, Euro, Yen and Pound “float” against each other. Floating exchange rate:
Foreign exchange market determines the relative value of a currency.
Some countries use other institutional arrangements to fix their currency’s value.
Some countries use: Pegged exchange rate.
Value of currency is fixed relative to a reference currency.
Dirty float. Hold currency value within some range
of a reference currency. Fixed exchange rate.
Set of currencies are fixed against each other at some mutually agreed upon exchange rate.
Require somedegree ofgovernmentintervention.
Roots inmercantile
trade.Inconvenient to ship
gold, changed topaper - redeemed
for gold.Seeking a
“balance of trade”equilibrium.
Pegging currenciesto gold and
guaranteeingconvertibility.
Trade Surplus
GoldIncreased
money supply = price
inflation.
Decreased money supply
= price decline.
As prices decline, exportsincrease and trade goes
into equilibrium.
1944: 44 countries meet in New Hampshire. Fixed exchange rates deemed desirable.
Agree to peg currencies to US dollar that is convertible to gold at $35/oz.
Promise not to devalue currency for trade purposes and will defend currencies.
Created: World Bank International Monetary Fund.
Want to avoid problems following WWI. Discipline:
Fixed rate imposes discipline: Need to maintain rate stops competitive
devaluations. Imposes monetary discipline, curtailing inflation.
Flexibility: Lending facility:
Lend foreign currencies to countries having balance-of-payments problems.
Adjustable parities: Allow countries to devalue currencies more than 10%
if B of P was in “fundamental disequilibrium’.
International Bank for Reconstruction and Development (IBRD).
Rebuild Europe’s war-torn economies. Overshadowed by the Marshall Plan.
Turns to ‘development’. Lending money to Third World nations.
Agriculture. Education. Population control. Urban development.
IBRD raises money in bond market and lends at ‘market rate’.
International Development Agency raises money through subscriptions
and lends to very poor countries.
Jamaica Agreement - 1967 Floating rates acceptable. Gold abandoned as reserve asset. IMF quotas increased.
IMF continues role of helping countries cope with macroeconomic and exchange rate problems.
Floating: Monetary policy autonomy.
Restores control to government.
Trade balance adjustments.
Adjust currency to correct trade imbalances.
Fixed: Monetary discipline. Speculation.
Limits speculators. Uncertainty.
Predictable rate movements. Trade balance adjustments.
Argue no linkage between exchange rates and trade.
Linkage between savings and investment.Which system is better?
Evidence is unclear.