Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
International Economic Relations Econ 548 Summer 2007 William J. Polley Department of Economics College of Business and Technology Western Illinois University A brief history of the international financial system & the role of the U.S. Bimetalism and Gresham’s Law Isaac Newton 1717 Coinage Act of 1792 1834: U.S. sets price of gold at $20.67 1 ounce of gold=15 ounces of silver “De facto” gold standard Civil War years: Greenback era and Legal Tender Acts 1873: “Crime of ’73” U.S. demonetizes silver A brief history of the international financial system & the role of the U.S. 1880: Beginning of the modern international gold standard 1896: William McKinley defeats William Jennings Bryan in U.S. presidential election Major issue of the race was the “silver question”. Bryan (along with midwestern and western populists) favored bimetalism. 1900: U.S. formally joins international gold standard A brief history of the international financial system & the role of the U.S. World War I causes countries to leave the gold standard U.S. returns in 1919 U.K. returns in 1925, but wartime inflation made a return to the pre-war gold price problematic. U.K. leaves gold standard again in 1931 U.S. raises gold price to $35/ounce in 1933 to stem the outflow Aside: German hyperinflation in 1923 added to the post-war instability A brief history of the international financial system & the role of the U.S. 1944: Bretton Woods Conference leads to creation of the International Monetary Fund and World Bank. Bretton Woods creates an international system of fixed exchange rates. All currencies are fixed to the U.S. dollar Dollar is defined to be equal to 1/35 ounce of gold. (That is, 1 ounce of gold=$35…same as 1933.) A brief history of the international financial system & the role of the U.S. Bretton Woods works well until the late 1960s. U.S. begins running balance of payments deficits while Japan and Europe run surpluses. Foreign governments begin piling up dollar assets and want to exchange them for gold. By 1971, foreign claims exceeded the U.S. stock of gold. Nixon suspends convertibility— ”closing the gold window”. A brief history of the international financial system & the role of the U.S. Thereafter the U.S. devalues the dollar, first to $38/ounce, then to $42.22/ounce, where it remained until the system was finally and permanently abandoned. A brief history of the international financial system & the role of the U.S. Post-Bretton Woods there are a variety of exchange rate arrangements. In addition to the completely fixed and flexible regimes, there are: Crawling peg Currency boards Managed float And others… A brief history of the international financial system & the role of the U.S. European Union Treaty of Rome (1957) Created a customs union among France, Germany, Italy, Belgium, the Netherlands, and Luxembourg. Closer monetary union begins to take shape in the 1970s The “snake” European Monetary System Maastricht Treaty (1992) A brief history of the international financial system & the role of the U.S. Maastricht Treaty established “convergence criteria” for joining the monetary union. Common currency goes into effect January 1, 1999. Euro banknotes and coins go into circulation January 1, 2002. Additional information on European Central Bank website: www.ecb.int