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The Choice of Money

Local currency is used for domestic transactions. In international transactions, the parties must designate two monies and the place of payment: • The money of account is the money used to define the amount of the obligation. • The money of payment is the money used to pay off an obligation. • Payment is made in local currency at the foreign exchange rate on the date payment is due. If the place of payment is not selected, courts may use the place of delivery or designate some other place.
CHAPTER 6
MONEY AND BANKING
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MONEY AND BANKING
Topics for this chapter: Money The International Monetary Fund (IMF) Currency Exchange Currency Support Development Banks The Bank for International Settlements Regional Monetary Systems National Monetary Systems
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The IMF

An intergovernmental organization headquartered in Washington, D.C. Using funds contributed by its members, it will purchase a currency on the application of a member to help the member discharge its international indebtedness and stabilize its currency exchange rates.
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The International Monetary Fund (IMF)



The set of rules and procedures by which different national currencies are exchanged for each other in world trade is known as the international monetary system. The gold standard was a monetary system that provided for the free circulation between states of gold coins of standard specification. The gold standard was replaced by the gold bullion standard, a monetary system that required states to buy and sell gold bullion with paper currency at a fixed price.
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CHAPTER 6
Money


Money is anything customarily used as a medium of exchange and a measure of value. Money may be: • Private – stock, rare metals (gold and silver), commodities • Official – unit of exchange issued by a government (coins and currency)


Surveillance: Purpose: To promote global economic stability through multilateral cooperation. IMF mandated to: Oversee the international monetary system and Monitor the economic and financial policies of the 185 members. This activity is known as surveillance.
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IMF Quotas


A state must contribute a certain sum of money called a quota subscription before it can become a member of the IMF. Quota is based upon size of state’s economy. The quota serves these purposes:
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The Value of Money


The value of money is nominally constant. The principle that an obligation to pay a particular sum of money is fixed and does not change even if the purchasing power or foreign exchange rate of the money does is known as nominalism. Some national governments (e.g., Germany, Belgium, Argentina) allow money to be revalued if the currency has almost totally collapsed. England, the US, and Italy do not allow revaluation.
International Monetary Fund
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Major Functions of the IMF




Currency exchange Currency support Surveillance Yearly in-depth appraisals of each members’ economic situation Technical assistance through staff missions

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Case 6-1
Republic of Argentina et al. v. Weltover, Inc. et al.



Argentina issued bonds that were to be paid in U.S. dollars at the place selected by the bond holders. The plaintiffs selected NY, and Argentina made interest payments there. Argentina unilaterally tried to reschedule the bond payments and plaintiffs demanded payment in full, objecting to the rescheduling and specifying NY as the place of payment. U.S. Supreme Court held that Argentina’s rescheduling of the maturity dates had a direct effect in the United States.
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The IMF’s Special Drawing Right (SDR)
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