Econ472 (International Trade) ch 21

Econ472 (International Trade) ch 21 - Chapter 21 The...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 21 The International Monetary System: History and Current Controversies Learning objectives By the end of this chapter you should be able to understand: The history of the international financial system before 1973 with particular emphasis on why the Bretton Woods system of 1947–71 failed; The requirements for the gold standard and its basic mechanisms Sterilization and nonsterilization and the disadvantages of the gold standard the ways in which the experience with flexible exchange rates has not met expectations (far more volatility in both nominal and real exchange rates than thought likely); the issues relating to the phrase “new international financial architecture,” including the problem of debt relief for heavily indebted poor countries; Introduction This textbook covers a number of different exchange rate arrangements. None of the exchange rate regimes covered are abstract ideas that economists invented because they like to study theoretical concepts. Each exchange rate regime that is presented in this textbook has a real- world analogue: it is either one that still exists in some country today, or it was a dominant exchange rate regime in the past. This chapter covers the evolution of the various exchange rate regimes over the past two centuries. First we discuss the gold standard that prevailed until the end of the World War II, and then we turn to the Bretton Woods system, which was an important exchange rate agreement for industrialized countries between 1944 and 1972. The demise of the Bretton Woods agreement in the early seventies heralded the end of the fixed exchange rates and the rise of flexible exchange rates. The European experience with fixed exchange rates is covered in 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 23, and the Currency Crises (in Latin America and Asia) are covered in Chapter 22. The Earliest Exchange Rates In some sense the exchange rate is one of the most fundamental economic variables. When cultures developed in ancient times, any rudimentary level of economic development gave rise to the introduction of a currency – shells, or any other precious, rare object to facilitate the means of exchange and unit of account. As soon as such a currency was established in a specific culture, trade among tribes or cultures required a rate of exchange (e.g., how many of my pretty shells does it take to equal one of our precious goats?). Over time currencies based on shells were replaced by currencies based on precious gems or metals because these materials were durable (imagine stepping one of those precious shells…). By 1800 all nations based their currency either on Gold or Silver. “Based on” here means that in order to avoid having to carry around large quantities of gold or silver, governments printed paper money that could always be exchanged for a precious metal. In essence the government promised to exchange a certain quantity of gold, say one ounce, for a certain quantity of currency, say $20. In most European economies, silver became the currency of choice
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/29/2008 for the course ECON 472 taught by Professor Eicher during the Winter '08 term at University of Washington.

Page1 / 25

Econ472 (International Trade) ch 21 - Chapter 21 The...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online