TCQT9 international mon system

IX International Monetary System and International Finance Institutions Outline Gold Standard Bretton Woods System-The US Dollar Standard (BWS) Post-Bretton Woods System International Finance Institutions (IMF, WB, ADB) TS Nguyễn Phúc Hiền - ðại học Ngoại thương Gold Standard (1880-1914) Concept • • • • The currency is pegged at a constant rate to gold The central bank is obliged at any time to change cash into respective quantity of gold (obligation to convertibility) VD: 20,67 USD/ounce (1879) 4,24 GBP/ounce (1818) Rules of the Gold Standard • • National currencies are defined in gold The cross rate is defined as well Lower transaction costs Gold convertibility TS Nguyễn Phúc Hiền - ðại học Ngoại thương Gold Standard (1880-1914) • • • • The monetary base is backed by gold reserves Automatic regulation of money supply Restrictive/expansionary effects depending on the changes of the gold reserves Free movement of capital Necessary for free trade flow Interest arbitrage Free export and import of gold Gold arbitrage (instead of national currencies) Stabilization of exchange rate Free movement of goods TS Nguyễn Phúc Hiền - ðại học Ngoại thương Current account imbalance under Gold Standard Assumptions • Two countries Germany (Reichmark-RM) and US (USD) • The exchange rate is not an instrument of international economic policy • The monetary policy is endogenous • The adjustment of international competitiveness is achieved via prices • Negative current account in US (Im>Ex) positive current account in Germany (Im