Professional Documents
Culture Documents
6
Power Points by
Joseph F. Greco, Ph.D.
California State University, Fullerton
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INNION
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I. ANATIVE EXCHANGE RATE SSTEMS
II. A BRIEF HISTOR OF THE
INTERNATIONA MONETAR STEM
III. THE EUROPEAN MONETAR SSTEM AND
MONETAR UNION
IV. EMERGING MARKET CURRENC CRISES
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. Forces influenced by
a. price levels
b. interest rates
c. economic growth
3. Rates fluctuate randomly
over time.
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B. Managed Float (ƠDirty Floatơ)
1. Market forces set rates
unless excess volatility
occurs.
. Then, central bank determines
rate.
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C. Target-Zone Arrangement
1. Rate Determination
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D. Fixed Rate System
1. Rate determination
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I. THE USE OF GOD
A. Desirable properties
B. In short run: High production costs limit
changes.
C. In long run: Commodity money insures
stability.
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II. The Classical Gold Standard
(181-1914)
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. Maintenance involved the
buying and selling of gold at that
price.
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C. Currencies devalued in 1931
- led to trade wars.
D. Bretton Woods
Conference
- called in order to avoid
future protectionist and
destructive economic policies
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V.The Bretton Woods System (1946-1971)
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3. Exchange rates allowed to fluctuate
by 1% above or below initially set
rates.
B. Collapse, 1971
1. Causes:
a. U.S. high inflation rate
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V.Post-Bretton Woods System (1971-Present)
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B. OPEC and the Oil Crisis (1973-774)
1. OPEC raised oil prices four fold;
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4. Surpluses recycled to debtor
nations which set up debt
crisis of 1980ƞs.
C. Dollar Crisis (1977-78)
1. U.S. B-O-P difficulties
. Result of inconsistent
monetary policy in U.S.
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3. Dollar value falls as confidence
shrinks.
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I. INTRODUCTION
A. The European Monetary System
(EMS)
1. A target-zone method
(1979)
. Close macroeconomic
policy coordination required.
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B. EMS Objective:
to provide exchange rate
stability to all members by
holding exchange rates
within specified limits.
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C. European Currency Unit (ECU)
a Ơcocktailơ of European currencies
with specified weights as the unit of
account.
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. Member Pledge:
to keep within 1 %
margin above or below
the central rate.
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D. EMS ups and downs
1. Foreign exchange
interventions:
failed due to lack of
support by coordinated
monetary policies.
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. Currency Crisis of Sept. 199
a. System broke down
b. Britain and Italy
forced towithdraw
from EMS.
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H. Maastricht Treaty
1. Called for Monetary
Union by 1999 (moved to
00)
. Established a single
currency:
the euro
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3. Calls for creation of a single
central EU bank
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I. Costs / Benefits of A Single Currency
A. Benefits
1. Reduces cost of doing
business
. Reduces exchange rate
risk
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B. Costs
1. ack of national
monetary flexibility.
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I. Transmission Mechanisms
A. Trade links
contagion spreads through trade
B. Financial System
-more important transmission
mechanism
-investors sell off to make up for losses
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II. Origins of Emerging Market Crises
A. Moral hazard
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III. Policy Proposals for Dealing with
Emerging Market Crises
A. Currency Controls