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The International Monetary
System
By
Jeffrey Wong
• What was the gold-exchange standard in
1944 to 1973 and why is it important?
• How globalization and world politics
effected our economy?
“Timeline”
1945
The International Bank
for Reconstruction and
Development was
established. Also know as
the World Bank
July 1944
The representatives of
44 countries met at
Bretton Woods, New
Hampshire. Agreed to
renew the goldexchange standard.
Bretton Woods system
was born.
1960
Speculative
Capital Flows
and Crises
International
Monetary Fund
(IMF) was form
US Dollar was
pegged to gold
at$35 an ounce
Early 1970’s
Economic crises were
massive,
The Bretton Woods
structure of fixed
exchange rates was
brought down
“Timeline”
August 15, 1971,
President Richard M.
Nixon announced that
the United States
would no longer
redeem gold at $35 per
ounce
From $3 to
$12 per barrel
1973-1975
First Oil Shock
Worldwide inflation
and the transition to
Floating rates
US speeds up it
monetary growth
under the Floating
exchange rate
system
High inflation and some
Stagflation worldwide
Bretton Woods
System ended
Second Oil Shock
1979 -1980
Inflation abroad as foreign
central banks purchase the
reserve currency to maintain
their exchange rates and expand
their money supplies in the
process
From $13 to
$32 per barrel
Purchasing Power Parity Model
Foreign
Exchange
market
E
1
E
2
1
2
0
R
1
R
2
Domestic-currency
Return on foreignCurrency deposits
Domestic interest
rate, R
L(R,Y1)
Money demand curves
Ms
P
L(R,Y2)
1
US money
market
Real domestic
Money holdings
2
Output rises
US Real
Money supply
Has the world Income Gap Narrowed over Time?
• Growth doesn’t happen Y=E(P*Q)
•
•
•
•
•
world over production
real estate e-financials speculation
corrupt banks
government waste
profit movement overseas
The Policy Trilemma for Open Economies
The vertices of the
triangle show three
goals that policymakers
in open economics
would like to achieve
Monetary
Policy autonomy
Exchange
rate stability
Unfortunately,
at most two can coexist
Floating exchange rate
Freedom of
Capital movement