–stability in international prices
–inherent anti-inflationary nature
• The problems of fixed rate regime:
–maintain large quantities of international reserves
• Contemporary Currency Regimes
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History of the International Monetary System
• The Gold Standard (1876 – 1913)
–“Rules of the game” : each country set the rate at which its currency unit could be converted to a weight of gold
–Attract both depositors and borrowers to Eurocurrency markets.
–Loan rate are lower –Deposit rate are higher
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Contemporary currency regimes
• Demonetization of gold • Diversification of international
–During WWII the US dollar was the only major trading currency that continued to be convertible
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History of the International Monetary System
• Bretton Woods and the International Monetary Fund (IMF) (1944)
–Fixed rates can be maintained at rates
that are inconsistent with econttributes of the “Ideal” Currency
–Managed floating with no pre-announced path
精品课件 –Independent floating
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Contemporary currency regimes
• The choice between Fixed and Flexible Rates
• A nation’s choice reflects national priorities including:
Chapter 2 The International Monetary System
Copyright © 2007 Pearson Addison-Wesley. All rights reserved.
Topics
• History of the International Monetary System
–Currency exchange rates were “fixed”
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History of the International Monetary System
• The Inter-War Years & WWII (19141944)
–Currencies were allowed to fluctuate over a fairly wide range in terms of gold.
• holding excess corporate liquidity • a source of short-term bank loans
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History of the International Monetary System
• Eurocurrency Interest Rates: LIBOR
reserves • Legalization of Floating regime
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Contemporary currency regimes
• The IMF’s Exchange Rate Regime Classifications:
–Exchange arrangements with no separate legal tender
–Currency board arrangements
–Other conventional fixed peg arrangements
–Pegged exchange rates within horizontal bands
–Crawling pegs
–Exchange rates within crawling pegs
–inflation, –unemployment, –interest rate levels, –trade balances, –economic growth.
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Fixed Versus Flexible Exchange Rates
• Countries would prefer a fixed rate regime for the following reasons:
–established a US dollar based international monetary system
– created two new institutions
• International Monetary Fund (IMF) • World Bank
– Special Drawing Right (SDR)
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History of the International Monetary System
• Eurocurrencies
–These are domestic currencies of one country on deposit in a second country
–two valuable purposes: