第四章 国际货币系统 International Monetar

Definition of IMS

• International monetary system is broadly defined as a complex set of conventions, rules, procedures and institutions that the conduct of financial relations between nations.
• Exchange rate system is a set of rules governing the value of a country’s currency relative to other foreign currencies.
• Commodity money such as gold and silver was widely used in early times.
• Commodity-backed money refers to mainly the bank notes which are backed by commodities. ( Bank notes )
• Fiat money is inconvertible money that is made legal tender by a government decree. ( backed by nothing but the faith that people will use it )

The Gold Standard 1876 - 1944

a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold, that is , to announce the gold par value ( gold parity) (黄金面值)

The Classical Gold Standard 1876 - 1914

• A fixed exchange rate means that the value of currency is fixed to sth. else.
  • It means the flexibility of the exchange rate is limited to a narrow range, called parity band, around the chosen fixed rate, called the par value
• Balance-Of-Payments Adjusment => price-specie-flow mechanism
  • U.S. price 下 => Export 上 => BOP surplus => High ex.rate => Gold inflow => Monetary supply 上 => U.S. price 上
• Rules of the game : central banks were supposed to raise their discount rates to speed up a gold inflow

Performance

1. It assured long-term price stability.
2. It does not need a central bank.
3. Prices were highly unstable in the short run.
4. Because of the little discretion for government to user monetary policy, unemployment is higher.
5. Lack of this scarce resource, gold, can be seriously hampered 限制 the sufficient monetary reserves.

A gold exchange standard 1925 - 1931

Bretton Woods System 1944 - 1971

1. Each nation fixed the value of their currencies to the U.S. dollar.
2. The dollar was the anchor currency. Other currencies were indirectly linked to gold.
3. The parity band which was the width of the floating range of the par value was with 1% on either sides.
4. If the ex.rate deviated from the parity ban, the monetary authorities should intervene in the foreign exchange market to maintain the par value.
5. The par value was adjustable.

• IMF main function is to pool international reserves of member nations that could loaned on short-term basis to those experiencing a shortage of foreign exchange reserves.
• Revaluation \ Devaluation refers a rise \ fall in the price f currency by government decree. (含金价上升或下降)
  • Appreciation （浮动汇率）

Triffin Dilemma

It was that the U.S. could run neither BOP deficit nor surplus under the Bretton Woods System.

1. To meet the demand for dollar, U.S. run deficits
2. To maintain the price of dollar, U.S. BOP = 0
3. Impossible

• Dollar crisis , a run on the dollar , in which large numbers of people attempted to sell their dollars to the Federal Reserve, causing the Feb o approach insolvency(破产).
• Special drawing rights to partially alleviated(减轻) the pressure on the dollar as the international reserve currency.
• Smithsonian Agreement
  • revalue dollar
  • the margin by which other currencies could fluctuate against the dollar was widened from 1 to 2.25%

Floating Exchange Rate System

The floating exchange rate is the rate free to go wherever the market equilibrium is.

• Clean float rate solely determined by the market forces.
• Managed float rate ( Dirty float ) The government can have a direct impact on the ex.rate.

Jamaica Accord (1976) dirty float

1. Member countries were basically free t choose any exchange rate system they wanted.
2. Gold was abandoned as a reserve asset.
3. The conference aimed at increasing the importance of SDRs in international reserves, and there was a declaration that the SDR should become the “principal reserve asset”.

Plaza Agreement (1985)

The purpose was to intervene collectively to drive down the value of the dollar.

Louvre Accord (1987)

Declare that the monetary authorizes would cease to driven down the value of the dollar.

The Creation of the Euro

• Currency Turmoil and Crises post - 1990
  • Mexican Peso Crisis of 1995
  • The Asian contagion of 1997
  • The fall of the Russian ruble in 1998
  • 2002 Argentine peso crisis

Exchange Rate System in Practice

• crawling peg is an exchange rate system in which a country pegs its currency to another nation’s currency, but allows the parity value to change up to a given percentage.( It’s a compromise between fixed and floating rates. )
  • tied to a par value that changes infrequently, but suddenly in large jump.
• Currency basket ( currency-basket peg exchange rate system ) means that a currency is pegged to a weighted average of a number of foreign currencies.
• Currency boards is a monetary authority that issues notes and coins convertible into a foreign anchor currency or commodity ( also called the reserve currency ) at a truly fixed rate and on demand
  • Base on 100 percent foreign reserve
• Dollarization means that a country use the currency of another nation to serve as legal tender.
  • Disadvantages
    1. Lose its right to administer monetary policy and form of exchange rate regime
    2. Lose its ability to collect seigniorage, the profi from issuing coinage.
    3. Lose its role as the lender of the last resort
    4. Damage a nation’s sense of pride.
  • Advantages
    1. Reduce risk and protect against inflation and devaluation.
    2. More stable capital market
    3. Imporve the global economy by allowing for easier integration of economies into the world market.

Arguments for Fixed and Floating Exchange Rates

Floating Exchange Rates

• Automatic balance-of-payments adjustments
• Monetary policy autonomy
  • Use fiscal and monetary policy to contract the economy without worrying about the need to maintain parity.
• Economic stability

Fixed Exchange Rates

• the need to maintain a fixed exchange rate imposes monetary discipline on a country
• Limit the destabilizing(不安定的) effects of speculation.
• Decrease the uncertainty that accompanies floating exchange rates dampens the growth of international trade and investment
• keeping the exchange rates low can import the competitiveness in foreign trade