《国际财务管理》（英文版） Chap 2 The International Monetary System

Chapter TWo The international 2 Monetary System Chapter objective This chapter serves to introduce the student to the institutional framework within which International payments are made The movement of capital is accommodated Exchange rates are determined

INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 2 Chapter Two The International Monetary System Chapter Objective: This chapter serves to introduce the student to the institutional framework within which: •International payments are made. •The movement of capital is accommodated. •Exchange rates are determined

Chapter Two Outline Evolution of the International Monetary System o Current Exchange Rate Arrangements o European monetary system Euro and the european monetary union The mexican peso crisis The asian Currency Crisis o Fixed versus Flexible Exchange rate regimes McGraw-Hilylrwoin 2-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-1 ⚫ Evolution of the International Monetary System ⚫ Current Exchange Rate Arrangements ⚫ European Monetary System ⚫ Euro and the European Monetary Union ⚫ The Mexican Peso Crisis ⚫ The Asian Currency Crisis ⚫ Fixed versus Flexible Exchange Rate Regimes Chapter Two Outline

Eⅴ olution of the International monetary system o Bimetallism: Before 1875 o Classical Gold Standard: 1875-1914 Interwar period 1915-1944 o Bretton Woods System: 1945-1972 o The Flexible Exchange rate Regime: 1973 Present McGraw-Hilylrwoin 2-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-2 Evolution of the International Monetary System ⚫ Bimetallism: Before 1875 ⚫ Classical Gold Standard: 1875-1914 ⚫ Interwar Period: 1915-1944 ⚫ Bretton Woods System: 1945-1972 ⚫ The Flexible Exchange Rate Regime: 1973- Present

Bimetallism: Before 1875 o a"double standard"in the sense that both gold and silver were used as money Some countries were on the gold standard, some on the silver standard some on both o Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents e Gresham 's law implied that it would be the least valuable metal that would tend to circulate McGraw-Hilylrwoin 2-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-3 Bimetallism: Before 1875 ⚫ A “double standard” in the sense that both gold and silver were used as money. ⚫ Some countries were on the gold standard, some on the silver standard, some on both. ⚫ Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. ⚫ Gresham’s Law implied that it would be the least valuable metal that would tend to circulate

Classical Gold Standard 1875-1914 o During this period in most major countries Gold alone was assured of unrestricted coinage a There was two-way convertibility between gold and national currencies at a stable ratio Gold could be freely exported or imported The exchange rate between two country's currencies would be determined by their relative gold contents McGraw-Hilylrwoin 2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-4 Classical Gold Standard: 1875-1914 ⚫ During this period in most major countries: ◼ Gold alone was assured of unrestricted coinage ◼ There was two-way convertibility between gold and national currencies at a stable ratio. ◼ Gold could be freely exported or imported. ⚫ The exchange rate between two country’s currencies would be determined by their relative gold contents

Classical Gold Standard 1875-1914 For example, if the dollar is pegged to gold at U.S$30=1 ounce of gold, and the british pound is pegged to gold at e6=l ounce of gold, it must be the case that the exchange rate is determined by the relative gold contents $30=￡6 $5=￡1 McGraw-Hilylrwoin 2-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-5 For example, if the dollar is pegged to gold at U.S.$30 = 1 ounce of gold, and the British pound is pegged to gold at £6 = 1 ounce of gold, it must be the case that the exchange rate is determined by the relative gold contents: Classical Gold Standard: 1875-1914 $30 = £6 $5 = £1

Classical Gold Standard 1875-1914 o Highly stable exchange rates under the classical gold standard provided an environment that was conducive to international trade and investment e Misalignment of exchange rates and international imbalances of payment were automaticall corrected by the price-specie-flow mechanism McGraw-Hilylrwoin 2-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-6 Classical Gold Standard: 1875-1914 ⚫ Highly stable exchange rates under the classical gold standard provided an environment that was conducive to international trade and investment. ⚫ Misalignment of exchange rates and international imbalances of payment were automatically corrected by the price-specie-flow mechanism

Classical Gold Standard 1875-1914 There are shortcomings a The supply of newly minted gold is so restricted that the growth of world trade and investment can be hampered for the lack of sufficient monetary reserves Even if the world returned to a gold standard, any national government could abandon the standard McGraw-Hilylrwoin 2-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-7 Classical Gold Standard: 1875-1914 ⚫ There are shortcomings: ◼ The supply of newly minted gold is so restricted that the growth of world trade and investment can be hampered for the lack of sufficient monetary reserves. ◼ Even if the world returned to a gold standard, any national government could abandon the standard

Interwar Period: 1915-1944 o Exchange rates fluctuated as countries widely used"predatory''depreciations of their currencies as a means of gaining advantage in the world export market Attempts were made to restore the gold standard but participants lacked the le political will to follow the rules of the game o The result for international trade and investment was profoundly detrimental McGraw-Hilylrwoin 2-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-8 Interwar Period: 1915-1944 ⚫ Exchange rates fluctuated as countries widely used “predatory” depreciations of their currencies as a means of gaining advantage in the world export market. ⚫ Attempts were made to restore the gold standard, but participants lacked the political will to “follow the rules of the game”. ⚫ The result for international trade and investment was profoundly detrimental

Bretton Woods system 1945-1972 Bretton Woods. New hampshire ations at Named for a 1944 meeting of 44 The purpose was to design a postwar international monetary system e The goal was exchange rate stability without the gold standard o The result was the creation of the imf and the World bank McGraw-Hilylrwoin 2-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-9 Bretton Woods System: 1945-1972 ⚫ Named for a 1944 meeting of 44 nations at Bretton Woods, New Hampshire. ⚫ The purpose was to design a postwar international monetary system. ⚫ The goal was exchange rate stability without the gold standard. ⚫ The result was the creation of the IMF and the World Bank