Hist ry International Monetary System International Monetary System Gold Standard (1876-1913) WWl and Wwll Years(1914-1944) Rules of the ga each country set the rate at which it urgencies were allowed to fluctuate over a fairly wide urgency unit could be converted range in terms of gold and each other. in effect faxes. the ratio or par values or currences, were Increasing fluctuations in currency values became realized due to speculation and hurt the international trade. Expansionary monetary po governments supply of gold The US adopted a modified gold standard in 1934 Was in effect until the outbreak of wwi as the free movement of gold was interrupted he only major trading currency that continued to be convertible History of Bretton Woods Agreement International Monetary System WWI and WWll Years Bretton Woods Agreement(1944-1973) Us dollar based international monetary system established: nflation!!I fixed price between US dollar and gold: fixed price between the International Monetary Fund(IMF)and the World Bank Helps countries defend their currencies against cyclical, seasonal, or random occurrences Assist countries having structural trade problems if they promise to take adequate steps to correct these problems After Bretton Woods Agreement Bretton Woods Agreement Worked pretty well during the post-wWll era of reconstruction An Eclectic Currency Arrangement(1973- and growth in world trade ch 1973, exchange rates have becom ore volatile and less predictable than they inflation and various currency shocks among countries the"fixed flation(oil crisis, vietnam War) in US transferred to other There have nificant world countnes for example, the birth of Triffin dilemma for a reserve currency: requiring trade deficit but too much debt would lead to confidence crisis occurred Dollar is challenged by not only euro but also emerging After efforts of US suspend official purchases or sales of gold by the US Treasury on August 15, 197 Most currencies started to float from march. 19732016/11/2 2 History of International Monetary System • Gold Standard (1876-1913) – “Rules of the game” : each country set the rate at which its currency unit could be converted to a weight of gold – Exchange rates, the ratio of par values of currencies, were in effect “fixed” – Expansionary monetary policy was limited to a government’s supply of gold – Was in effect until the outbreak of WWI as the free movement of gold was interrupted 4-7 History of International Monetary System • WWI and WWII Years (1914-1944) – Currencies were allowed to fluctuate over a fairly wide range in terms of gold and each other. – Increasing fluctuations in currency values became realized due to speculation and hurt the international trade. – The US adopted a modified gold standard in 1934. – During WWII and its chaotic aftermath the US dollar was the only major trading currency that continued to be convertible. 4-8 History of International Monetary System • WWI and WWII Years (1914-1944) – Inflation! – Hyper-inflation!!! 4-9 Bretton Woods Agreement • Bretton Woods Agreement (1944-1973) – US and UK representatives met in 1944 at Bretton Woods, New Hampshire to create a post-war international monetary system – a US dollar based international monetary system established: fixed price between US dollar and gold; fixed price between other currencies and US dollar – the International Monetary Fund (IMF) and the World Bank • IMF – Helps countries defend their currencies against cyclical, seasonal, or random occurrences – Assist countries having structural trade problems if they promise to take adequate steps to correct these problems 4-10 Bretton Woods Agreement • Worked pretty well during the post-WWII era of reconstruction and growth in world trade • experienced inconsistency of monetary and fiscal policies, inflation and various currency shocks among countries • Inflation (oil crisis, Vietnam War) in US transferred to other countries • Triffin dilemma for a reserve currency: requiring trade deficit , but too much debt would lead to confidence crisis occurred • After efforts of US suspend official purchases or sales of gold by the US Treasury on August 15, 1971 • Most currencies started to float from March, 1973 4-11 After Bretton Woods Agreement • An Eclectic Currency Arrangement (1973 – present) – Since March 1973, exchange rates have become much more volatile and less predictable than they were during the “fixed” period – There have been numerous, significant world currency events over the past 30 years, for example, the birth of euro, financial crises in Latin America and Asia. – Dollar is challenged by not only euro but also emerging market currencies. 4-12