Download The International Monetary System

European Community
Corruption Perception Index
Transparency
International
Gottingen University
Berlin, Germany
http://www.transparency.org
Corruption Perception Index
Rank
1
2
3
4
5
6
Country
Score
2014 Corruption Perception Index
Rank
Country
Score
1
Denmark
92
2
New Zealand
91
3
Finland
89
4
Sweden
87
5
Norway
86
5
Switzerland
86
2014 Corruption Perception Index
Rank
Country
Score
170
Iraq
16
171
S. Sudan
15
172
Afghanistan
12
173
Sudan
11
174
N. Korea
8
174
Somolia
8
2014 Corruption Perception Index
Rank
Country
Score
10
Canada
81
15
Japan
76
17
U. S. A.
74
26
France
69
100
China
36
103
Mexico
35
Shapiro: Chapter 3
The International
Monetary System
Alternative Exchange
Rate Systems
Free
(“Clean”) Float
Managed (“Dirty”) Float
Target-Zone
Fixed Rate
Hybrid
Free (“Clean”) Float System
Supply
& demand for currency
Price level changes (inflation)
Interest rate differentials
Economic growth
Exchange rates fluctuate randomly
Adjust quickly to new information
Managed (“Dirty”) Float System
Central
bank intervention
Reduce economic uncertainty
Impact on domestic economy
Appreciation (reduces exports)
Depreciation (higher inflation)
Managed (“Dirty”) Float System
Categories:
– 1.
smoothing daily fluctuations
– 2. “leaning against the wind”
– 3. unofficial pegging
Fluctuating Value of the Yen
[¥ per $,1954 - 2015]
“Japan spends 4 trillion yen on
currency interventions in September”
-MSNBC, 9/30/03
“Japan
spent more than 4 trillion yen
($36.2 billion) over the last month
intervening in currency markets,
adding to a record figure it has spent
this year in an aggressive yenweakening campaign that has been
criticized by its trading partners.”
“Japan spends 4 trillion yen on
currency interventions in September”
-MSNBC, 9/30/03
“That
brought the total for the year
to 13.48 trillion yen ($122.01
billion). The cumulative figure has
already surpassed the previous fullyear record of 7.64 trillion yen in
1999.”
“Japan spends 4 trillion yen on
currency interventions in September”
-MSNBC, 9/30/03
“Japanese
officials often threaten
to step into the market to prevent
‘excessive’ movements by the
Japanese currency, whose
fluctuations have a direct impact
on profits by exporters.”
Target-Zone Arrangement
Adjust
national economic
policies
Maintain exchange rates in a
“band” around official rates
European Monetary System
(EMS)
Target-Zone Arrangement
[European Currency Unit (ECU)]
unit of account – 1979-1999
composite currency
twelve European countries
exchange rate mechanism (ERM)
originally a ±2.25% range
electronic
Exchange Rate
Target Zone Arrangement
[European Monetary System]
120
115
110
105
100
95
90
85
80
Central Rate
1
2
3
4
5
Time
6
7
8
9
Exchange Rate
Target Zone Arrangement
[European Monetary System]
105
104
103
102
101
100
99
98
97
96
95
+2.25%
-2.25%
1
2
3
4
5
Time
6
7
8
9
Exchange Rate
Target Zone Arrangement
[European Monetary System]
105
104
103
102
101
100
99
98
97
96
95
+2.25%
-2.25%
1
2
3
4
5
Time
6
7
8
9
Target Zone Arrangement
[European Monetary System]
+2.25%
-2.25%
?
?
Target Zone Arrangement
[European Monetary System]
+2.25%
-2.25%
Buy
Sell
Target-Zone Arrangement
[European Currency Unit (ECU)]
unit of account – 1979-1999
composite currency
twelve European countries
exchange rate mechanism (ERM)
originally a ±2.25% range
adjusted to a ±15% range
electronic
Target Zone Arrangement
[European Monetary System]
Exchange Rate
120
115
110
+15%
105
+2.25%
100
95
-2.25%
90
85
-15%
80
1
2
3
4
5
Time
6
7
8
9
European Monetary Union
Maastricht
Treaty (7 Feb. 1992)
Single central bank (ECB)
Single European currency (“Euro”)
Qualification standards
– inflation
– currency stability
– national debt and deficit
European Monetary Union
[Convergence Criteria]
Inflation:
no more than 1.5% above
avg. of three members with lowest rate
L-T interest rate: no more than 2%
above avg. of three members with
lowest rate
Fiscal deficit: no more than 3% of
GDP
Govt. debt: no more than 60% of GDP
European Monetary Union
[Advantages]
Lower
currency conversion costs
Eliminate risk of currency fluctuations
Encourage trade and investment
Efficient allocation of resources
Coordinate monetary policy
Similar inflation rate
Fixed-Rate System
(Bretton Woods)
Target
exchange rates
Central bank buys or sells currency to
maintain rate
Coordinated monetary policy
Same inflation rate for each country
Sacrifices control of domestic
economic policy
The Gold Standard
Why?
Distrust of fiat (paper)
money and governments
Automatic adjustment mechanism
“price-specie-flow” mechanism
Reasons for Currency Crises
Global
trade links
Integrated financial systems
Debt policy – excessive short-term
debt
Avoiding Financial Crises
Currency
controls
Freely floating currency
Fixed exchange rates
Better information
Economics U$A Video
“Exchange Rates”
[# 1183]