当代全球商务第六版Chap010

10-13
The Role of the IMF
The IMF was responsible for avoiding a repetition of the chaos that occurred between the wars through a combination of 1. Discipline a fixed exchange rate puts a brake on competitive devaluations and brings stability to the world trade environment a fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation
10-3
Introduction
A floating exchange rate system exists in countries where the foreign exchange market determines the relative value of a currency Examples include the U.S. dollar, the European Union’s euro, the Japanese yen, and the British pound A pegged exchange rate system exists when the value of a currency is fixed to a reference country and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate Many developing countries have pegged exchange rates
10-7
The Gold Standard
Question: What is the Gold Standard?
The origin of the gold standard dates back to ancient times when gold coins were a medium of exchange, unit of account, and store of value To facilitate trade, a system was developed so that payment could be made in paper currency that could then be converted to gold at a fixed rate of exchange
10-8
Mechanics of the Gold Standard
The gold standard refers to the practice of pegging currencies to gold and guaranteeing convertibility Under the gold standard one U.S. dollar was defined as equivalent to 23.22 grains of "fine (pure) gold The exchange rate between currencies was based on the gold par value (the amount of a currency needed to purchase one ounce of gold)
10-9
Strength of the Gold Standard
The key strength of the gold standard was its powerful mechanism for simultaneously achieving balance-oftrade equilibrium (when the income a country’s residents earn from its exports is equal to the money its residents pay for imports) by all countries Many people today believe the world should return to the gold standard
10-14
The Role of the IMF
2. Flexibility A rigid policy of fixed exchange rates would be too inflexible So, the IMF was ready to lend foreign currencies to members to tide them over during short periods of balance-ofpayments deficits A country could devalue its currency by more than 10 percent with IMF approval
10-12
The Bretton Woods System
Under the Bretton Woods Agreement the US dollar was the only currency to be convertible to gold, and other currencies would set their exchange rates relative to the dollar devaluations were not to be used for competitive purposes a country could not devalue its currency by more than 10% without IMF approval
Introduction
Question: What is the international monetary system? The monetary system refers to the institutional arrangements that govern exchange rates Recall that the foreign exchange market is the primary institution for determining exchange rates
10-5
Introduction
Question: What role does the international monetary system play in determining exchange rates?
To answer this question, we have to look at the evolution of the international monetary system The Gold Standard The Bretton Woods system The International Monetary Fund The World Bank
10-11
The Bretton Woods System
A new international monetary system was designed in 1944 in Bretton Woods, New Hampshire The goal was to build an enduring economic order that would facilitate postwar economic growth The Bretton Woods Agreement established two multinational institutions 1. The International Monetary Fund (IMF) to maintain order in the international monetary system 2. The World Bank to promote general economic development
10-6
Classroom Performance System
When the foreign exchange market determines the relative value of a currency, a ________ exchange rate system exists. a) Fixed b) Floating c) Pegged d) Market
Global Business Today 6e
by Charles W.L. Hill
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 10
The International Monetary System
10-4
Introduction
A dirty float exists when the value of a currency is determined by market forces, but with central bank intervention if it depreciates too rapidly against an important reference currency China adopted this policy in 2005 With a fixed exchange rate system countries fix their currencies against each other at a mutually agreed upon value Prior to the introduction of the euro, some European Union countries operated with fixed exchange rates within the context of the European Monetary System (EMS)