International Finance TY BMS Gold Standard Systems Prof. Dipak Abhyankar 9820321404.

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Presentation transcript:

International Finance TY BMS Gold Standard Systems Prof. Dipak Abhyankar

Note Be sure that the speakers are on!

Exchange Rate Regimes Dipak Abhyankar

Barter System Advantage No Government Intervention No Paper Currency No ‘managed’ inflation

Limitations Divisibility Barter System

Limitations Divisibility Barter System Stocking Value for long

Limitations Divisibility Stocking value for long Fair price discovery Barter System

Experiments …… Sea Shells Clay Tablets Precious Stones

Gold and Silver MonometalismBimetallism

Gold Standard Systems Gold Specie Standard Actual Use of Gold Coins

Gold Specie Standard Actual Use of Gold Coins Advantages People are using real value No certification required Exchange Rate is simple and stable =

Gold Specie Standard Actual Use of Gold Coins Limitations Larger Space requirement for stocking Inconvenient to Carry Risk of Theft

Gold Specie Standard

Gold Bullion Standard

Currency is ‘pegged’ with Gold with a specified quantity Pegged

Gold Bullion Standard Unconditional Promise to convert Fiat Currency to Gold Pegged

Gold Bullion Standard Advantages Controlled Money Supply Anti Inflationary Exchange Rate is simple and stable Carries advantages of Divisibility, Stocking of credits and easier pricing Pegged

Gold Bullion Standard Disadvantages Inflationary measures are not possible, and hence full employment and growth objectives are not achieved Difficult to honor unconditional promise in war and crisis Pegged

Gold Exchange Standard Currency in Gold Exchange Standard is pegged with another currency with specified equation [Currency ‘B’] That another Currency is pegged with gold [Currency ‘A’] Currency ‘B’ is in Gold exchange standard Currency ‘A’ is in Gold Bullion Standard Currency B Pegged Currency A

Gold Standard Systems Gold Bullion Standard – Paper (Fiat) Currency Pegged with Gold Gold Exchange Standard – Paper (Fiat) Currency pegged with another currency which in turn is pegged with Gold Gold Specie Standard – `Actual Use of Gold Coins

Money is a headache and Money is the cure

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