Ch 7 - International Monetary System & Balance of Payments

Ch 7 - International Monetary System & Balance of...

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CHAPTER 7 THE INTERNATIONAL MONETARY SYSTEM & THE BALANCE OF PAYMENTS THE GOLD STANDARD: Countries agree to buy or sell their paper currencies in exchange for gold on the request of any individual or firm and to allow the free export of gold bullion and coins Adopted by the U.K. in 1821 Created a fixed exchange rate EXCHANGE RATES: Exchange rate: price of a one currency in terms of a second currency Fixed exchange rate system: price of a given currency does not change relative to each other currency o Under the gold standard, each country pegged the value of its currency to gold COLLAPSE OF THE GOALD STANDARD: Economic pressures of WWI Countries suspended pledges to buy or sell gold at currencies’ par values Gold standard readopted in 1920s Dropped during Great Depression British pound allowed to float in 1931 o Float: value determined by supply and demand THE BRETTON WOODS ERA: 44 countries met in Bretton Woods, New Hampshire in 1944 Goal: to create a postwar economic environment to promote worldwide peace and prosperity Renewed gold standard on modified basis (dollar-based) Created International Bank for Reconstruction and Development and International Monetary Fund INTERNATIONAL BANK FOR RECONSTRUCTIVE DEVELOPMENT: World Bank Goals: o To help finance reconstruction of European economies = Accomplished in mid 1950s o To build economies of the world’s developing countries ORGANIZATION OF THE WORLD BANK GROUP: International Bank for Reconstruction and Development Makes hard loans; $15 billion annually International Development Association Offers soft loans; $7 billion annually International Finance Corporation Promotes private sector development Multilateral Investment Guarantee Agency Provides political risk insurance
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OBJECTIVES OF THE INTERNATIONAL MONETARY FUND: To promote international monetary cooperation To facilitate the expansion and balanced growth of international trade To promote exchange stability, to maintain orderly exchange arrangements among
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This note was uploaded on 04/18/2008 for the course MGCR 383 taught by Professor Karlmoore during the Winter '08 term at McGill.

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Ch 7 - International Monetary System & Balance of...

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