The International Monetary System By Jeffrey Wong.

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Presentation transcript:

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?

July 1944 The representatives of 44 countries met at Bretton Woods, New Hampshire. Agreed to renew the gold- exchange standard. Bretton Woods system was born. International Monetary Fund (IMF) was form 1945 The International Bank for Reconstruction and Development was established. Also know as the World Bank US Dollar was pegged to gold at$35 an ounce 1960 Speculative Capital Flows and Crises Early 1970’s Economic crises were massive, The Bretton Woods structure of fixed exchange rates was brought down “Timeline”

Bretton Woods System ended August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem gold at $35 per ounce US speeds up it monetary growth under the Floating exchange rate system Worldwide inflation and the transition to Floating rates Inflation abroad as foreign central banks purchase the reserve currency to maintain their exchange rates and expand their money supplies in the process First Oil Shock From $3 to $12 per barrel High inflation and some Stagflation worldwide Second Oil Shock From $13 to $32 per barrel “Timeline”

Purchasing Power Parity Model Domestic interest rate, R E 12 M P 1 s E 2 L(R,Y1) L(R,Y2) Output rises Money demand curves 0 RR Domestic-currency Return on foreign- Currency deposits Real domestic Money holdings Foreign Exchange market US money market 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 Exchange rate stability Currency board Freedom of Capital movement Floating exchange rate Monetary Policy autonomy Capital controls The vertices of the triangle show three goals that policymakers in open economics would like to achieve Unfortunately, at most two can coexist

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