世界經(jīng)濟(jì)華科經(jīng)院國(guó)際貨幣系統(tǒng)

1、International monetary systemLearning objectives Be familiar with the historical development of the modern global monetary system Discuss the role played by the WB and the IMF in the international monetary system Be familiar with the difference btw a fixed and floating exchange rate system Know what

2、 exchange rate regimes are used in the world today and why countries adopt different exchange rate regimes Understand the debate surrounding the role of the IMF in the management of financial crises.What is the international monetary system International monetary system refers to the institutional a

3、rrangements that govern exchange rates.Types of exchange rate Floating exchange rate the foreign exchange market determines the relative value of a currency Pegged exchange rate the value of the currency is fixed relative to a reference currency Fixed exchange rate the value of a set of currencies a

4、re fixed against each other at some mutually agreed on exchange rate Dirty float try to hold the value of the currency within some range against an important reference currencyThe gold standard Pegging currencies to gold and guaranteeing convertibility By 1880, most of the worlds major trading natio

5、ns, including Great Britain, Germany, Japan, and the U.S., had adopted it. The strength was that it contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries.The period btw the wars:1913-1939 The gold standard worked reasonably well from the 1870s until the start of

6、WWI in 1914 when it was abandoned. The U.S. returned to it in 1919. It left it in 1933 but returned in 1934. GB returned to it in1925,and suspended convertibility in 1931. France returned in 1928. By the start of WWII in 1939, the gold standard was dead.The Bretton Woods System Representatives from

7、44 countries met to design a new international monetary system in 1944. There was consensus that fixed exchange rates were desirable, for no multinational institution could stop countries from engaging in competitive devaluations with the gold standard.The Bretton Woods System Under the agreement1.a

8、ll countries were to fix the value of their currency in terms of gold, but were not required to exchange their currencies for gold. only the dollar remained convertible into gold- at a price of $35 per ounce.2. A commitment not to use devaluation as a weapon of competitive trade policy.The dilemma o

9、f the U.S. Fed If the Fed held to a monetary policy appropriate to the domestic economic situation, it risked starving the world economy of monetary liquidity; if, on the other hand, it accommodated the worlds dollar needs, it invited domestic inflation and gradually undermined international confide

10、nce that the dollar would retain its value. That in turn created an irresistible pressure to convert dollars to gold and a crisis for the whole gold exchange system. Thus, the more the economies of other nations grew, the more this became a problem for the United States.The collapse of the fixed exc

11、hange rate system An increase in the U.S. government spending to finance the Vietnam conflict and welfare program, financed not by an increase in taxes, but by an increase in the money supply Japan and West German exported more to the U.S. Trade balance began to deteriorate. The increase in inflatio

12、n and the worsening of the U.S. foreign trade position gave rise to speculation in the foreign exchange market that the dollar would be devalued. Oil crises in 1971,when OPEC quadrupled the price of oil.The collapse of the fixed exchange rate system(conti.) Bundesbank (Germanys central bank) faced t

13、he inevitable and allowed its currency to float in 1971. President Nixon announced that the dollar was no longer convertible into gold in August 1971. A massive wave of speculation in 1972.The floating exchange rate regime The Jamaica Agreement1. Floating rates were declared acceptable.2. Gold was a

14、bandoned as a reserve asset.3. Total annual IMF quotas were increased to $41 billion. Non-oil-exporting, less-developed countries were given greater access to IMF funds.Financial crises in the post-Bretton Woods era A currency crisis when a speculative attack on the exchange value of a currency resu

15、lts in a sharp depreciation in the value of the currency or force authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.Financial crises in the post-Bretton Woods era(cont.) A banking crisis a loss of confide

16、nce in the banking system that leads to a run on banks, as individual and companies withdraw their deposits. A foreign debt crisis a country cannot service its foreign debt obligations, whether private-sector or government debt.The Asian crisis East Asia miracleexport-led growth Astounding rates of

17、growth for 3 decades without no serious economic downturns prior to 1997 Strong government policies Extensive government investment in education; Facilitating domestic investment in key industries; Encouraging a high savings rate among citizens Followed the dicta of the Washington Consensus and larg

18、ely liberalized their economy, but on a gradual and well-sequenced, rather than an abrupt and immediate adoption of liberal policiesThe Asian crisis(cont.) The investment boom The wealth created by export-led growth helped fuel an investment boom in commercial and residential property, industrial as

19、sets, and infrastructure. Soaring price of commercial and residential real estate (Hong Kong and Bangkok); Chaebols ambition in South Korea to build a major position in the global automobile and semiconductor industries in accordance with national goals and industrialization strategy ; Huge infrastr

20、ucture project by governments The Asian crisis(cont.) Excess capacity As the volume of investments ballooned during the 1990s, often at the bequest of national governments, the quality of many of these investments declined significantly. Excess capacity in residential and commercial property and in

21、industries Expanding imports Immediate causes in Thailand and South Korea contagion.The role of IMF To provide the Thai government with $17.2 billion in loans, but required to increase taxes, cut public spending, privatize several state-owned business, and raise interest rates, and to close illiquid

22、 financial institutions. To assemble a $37 billion rescue deal for Indonesia with WB and the Asian Development banks, but to close a number of troubled banks, reduce public spending, remove government subsidies on basic foodstuffs and energy, balance the budget, and unravel the crony capitalism.The

23、role of IMF (cont.) To lend $55 billion for South Korea, but to open their economy and banking system to foreign investors; to restrain the chaebol by reducing their share of bank financing and to publish consolidated financial statements and undergo annual independent external audits. to comply wit

24、h its commitments to the WTO to eliminate trade-related subsidies and restrictive import licensing and to streamline its import certification procedures.Evaluating the IMFs policy prescriptions Inappropriate policies IMFs one-size-fits-all approach to macroeconomic policy is inappropriate for many c

25、ountries.(South Korea) Moral hazard Banks should be forced to pay the price for their rash lending policies Lack of accountability lack the expertise required to do a good job, without having deep knowledge of the involved countryFinancial crisis in 2008 The bubble burst in 2000the root of the crisi

26、s Fed dropped the interest rate to about 2%, keeping it extremely low even after the recession ended, leading to the accumulation of insupportable debt; newly deregulated banks started looking for innovative ways to boost their bottom line; A huge popular to rush into housing marketFinancial crisis

27、in 2008Deregulating the banks the Glass-Steagall Act (1933) specifically prohibited risk-taking banks from investing FDIC-insured money in high-risk ventures; prevented banks from becoming “too big to fail by keeping banks that had different functions separate. the Financial Services Modernization A

28、ct (1999) to allow banks to merge with other banks and to invest their clients money in almost any type of venture; Commodities Future Modernization Act (2000) expunged all regulations on commodity and derivatives, making it illegal even to attempt to regulate these high-risk activities the Securiti

29、es and Exchange Commission (SEC) 2004 to abandon the 12:1 debt to reserves ratio for banks Financial crisis in 2008 Lax regulation New accounting standards permitted banks to create off-balance-sheet entities for certain investments, special investment vehicles(SIVs) So banks could use SIVs to make

30、all sorts of dangerously risky investments that are hidden in SIVs; off-balance-sheet entities did not have to hold any reserves against their super-risky investments.Financial crisis in 2008 Mortgage-backed securities Fannie Mae(mortgage agency) Subprime mortgage Given to a borrower who has poor cr

31、edit or insufficient income to make ongoing payments on the mortgage.Financial crisis in 2008 Money for nothing The banks invented a type of insurance they could buy to protect themselves in case these risky mortgage-backed securities defaulted-credit default swap(CDS) They used complex mathematical

32、 formulas to create the stacks of securities. AAA rating agencies(Moodys, Standard and Poors) the few investors soon realized they were ,in reality, mostly junk. more complex investment vehicle-CDO(collateralized debt obligation) to hide the securitys risk ; nearly all financial derivatives are held

33、 in unregulated conduits or SIVs to hide their liabilities from investorsFinancial crisis in 2008 Financial collapse During the summer of 2007,two subprime mortgage bond hedge funds owned by Bear Stearns, an investment bank, went broke Its collapse sent shock waves through the financial system. Afte

34、r the demise of Lehman Brothers and the continuing collapse of subprime mortgages, the banks fell like dominoes. CitigroupMorgan StanleyGoldman Sachs Merrill Lynch AIG were all in trouble.Financial crisis in 2008 Banks stopped trusting each other and stopped lending to businesses both large and smal

35、l. As these loans dried up, the credit crunch squeezed the lifeblood of the economy. The country, and the world, was plunged into the Great Recession.Government response Troubled Asset Relief Program(TARP) in Dec. 2008-$700 billion plus in bailout money would buy the banks toxic assets for far more than the mortgage-backed securities were worth.-TARP bill included s