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Monetary System
Chapter objective
Understand the development of the
international monetary system and different
exchange rate system including some
experiences.
Outline
1.Introduction
2.Evolution
System
3. Asian Currency Crisis
4.The Exchange Rate System
1.Introduction
The
1.Introduction
It
1.Introduction
A good
1.Introduction
2)adjustment:the
1.Introduction
In
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:Before1875
A double
(3).Interwar Period:1915-1944
World
(3).Interwar Period:1915-1944
The
(3).Interwar Period:1915-1944
Following
British
pound
Par value
German
mark
French
franc
U.S dollar
pegged at $35/oz.
gold
paradox
The 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
confidence in the reserve currency
itself,causing the downfall of the system.
SDR
Jamaica Agreement
In Jan. 1976 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 volatilities.
(2)Lessons
Counties
(2)Lessons
A country
Classified
37
(2).Classification
Fixed
The
Crawling pegs
To avoid
Managed floating
Under
Managed floating
Benefits:
Managed floating
What
:
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 exchange rate regime argue
that:
Eliminating the uncertainty of exchange rate and
promote international trade
Gold standard
International monetary
system
Bretton Woods System
Managed-float system
Par value
Price-specie-flow
mechanism
SDR
Key words
Questions and
Discussions
European Monetary
System and EU
10
Chapter objective:
Know something about EMS and
monetary union including EU, and integration.
Outline
1.European
Monetary System
2.the Euro and the European Monetary Union
(1)a Brief History of the Euro
(2) Benefits of Monetary Union
(3)Costs of Monetary Union
(4)Prospects of the Euro
3.Will it emerge Asian-Yuan?
4.Optimum currency area
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
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.
(1)European Currency
Unit(ECU)
ECU,
(2)Exchange Rate
Mechanism(ERM)
ERM,
(3)Maastricht Treaty
EU
1986
1987
1991
1994
1995
1999
2002
(3)Maastricht Treaty
The
1 Euro Is Equal to
Austrian
schilling
Belgian franc
Dutch guilder
Finnish markka
French franc
German mark
Irish punt
Italian lira
Luxembourg franc
Portuguese escudo
Spanish peseta
13.7603
40 . 3399
2 . 20371
5 . 94573
6 . 55957
1 . 95583
0 . 78756
1936 . 27
40 . 3399
200 . 482
166 . 386
Economic comparison
Euro-11, U.S, Japan
1997 Euro-11 U.S Japan
GDP $billion
6309
7819 4223
Population million 290
268 126
International
18.6% 19.6% 7.9%
trade share
Budget deficit
2.5
0.3
3.4
%of GDP
Inflation rate
1.8%
2.4% 1.7%
Indicators
Source:OECD
1961
(1)Major points:
1)A currency
(1)Major points:
The
(1)Major points:
If
(2)Benefits
Greater
price stability
Save the cost of
intervention, hedging
Save costs of
exchanging currencies
of imports
Save travel costs
costs
Give
up own
independent
stabilization and
growth policies
ECU
EMS
ERM
Maastricht
Treaty
Optimum currency
area
EU
Key words
Questions and
Discussions :Will the
East Asia set up
community?