1. From page 546… the International Monetary Fund (IMF). The Bretton Woods System : In July 1944, representatives of 44 countries meeting in Bretton Woods, New Hampshire, drafted and signed the Articles of Agreement of the International Monetary Fund (IMF). Even as the war continued, statement in the Allied countries were looking ahead to the economic needs of the postwar world.

2. Fixed exchange rate system fixed exchange rates against the U.S. dollarThe system set up by the Bretton Woods agreement called for fixed exchange rates against the U.S. dollar and an unvarying dollar price of gold--$35 an ounce. Member countries held their official international reserves largely in the form of gold or dollar assets and had the right to sell dollars to the Fed for gold at the official price.

3. Goals & Structure of the IMF “Two tiers” practice: dollar pegged on gold, member country’s exchange rate pegged on U.S. dollar. Some flexibilities are allowed: to adjust price level instability unemployment external imbalance disintegration of world economy

4. Evolution of IMF Reference of Chinese version.Reference of Chinese version.Reference of Chinese versionReference of Chinese version

5. Two major features of the IMF 1.IMF lending facilities quota 1.IMF lending facilities. The IMF stood ready to lend foreign currencies to members to tide over difficulties in their current account.Something more about quota. quota 2.Adjustable parities 2.Adjustable parities : Although each country’s exchange rate was fixed, it could be changed—devalued /revalued against dollar, if country’s balance of payment was in “fundamental disequilibria”.

6. Convertibility convertible currencyA convertible currency is one that may be freely exchanged for foreign currencies. convertibility on current account transaction onlyThe IMF articles called for convertibility on current account transaction only : Countries were explicitly allowed to restrict capital account transaction… Cases in Chinese versionCases in Chinese versionCases in Chinese versionCases in Chinese version

7. Hot money Private capital movementPrivate capital movement might be a factor leading to economic instability. Those policy-makers feared that speculative movement of “hot money” across national borders might sabotage their goal of free trade based on fixed exchange rates.

8. Internal & external balance under the Bretton Woods System The changing meaning of external balanceThe changing meaning of external balance : the period of “dollar shortage”; the Marshall Plan”; With virtually no private capital movement, current account imbalances had to be financed almost entirely through official reserve transactions and government loans.

9. restoration of convertibility take the riskThe restoration of convertibility in 1958 gradually began to change the nature of policy-makers’ external constraints. →the creation of worldwide foreign exchange market; take the risk of sudden reserve losses. restoration of convertibility Leads” and “lags evadedThe restoration of convertibility did not result in immediate and complete international financial integration.Most countries continued to maintain restrictions on capital account transactions. “ Leads” and “lags ” provided two of many ways through which official barriers to private capital movements could be evaded.

10. Speculative Speculative capital flows & crises “Fundamental disequilibrium” occurs, suspicion of an impending devaluation could spark a balance of payments crises, leading to depletion of the exchange reserve. Countries with large current account surpluses might face revaluation and uncontrollable growth of money supply. current accountIncreased importance of external goal of a current account target.