02.20.08 - 1 Chapter 5 Understanding the International...

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1 Chapter 5 – Understanding the International Monetary System - Money, money, money - Issue is convertible currencies – is the currency acceptable to nonresidents of the  issuing country o Need something that is acceptable in one place as it is somewhere else - Hard for us to understand – what you have in your pocket is good anywhere, though  falling - Most currencies are not and there is the problem – how do you achieve trade if parties  cannot agree as to how to give each other something of value Gold Gold Gold - Before gold had salt, jewels, etc. - Gold has always had appeal o Because it doesn’t tarnish o It is rare - Gold standard o Countries agree to buy or sell gold for an established number of currency units o Things that were backed by gold had more stability - Return to the gold standard o Recent influential advocates – look wise as price ++ o Not enough gold to be able to back all the trade that goes on during a daily basis - Present-day uses of gold o Jewelry - Today’s rate is $927 an oz. Very high Bretton Woods and the Gold Exchange Standard - In 1944, representative of the major Allied powers met at Bretton Woods, New  Hampshire to plan for the future - General consensus o Stable exchange rates were desirable So that the world can plan o Floating or fluctuating exchange rates had proved unsatisfactory o The government controls of trade, exchange, and production, that had developed  through WWII were wasteful and discriminatory - To achieve its goals, the Bretton Woods Conference established o The International Monetary Fund (IMF) December 1945
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2 From 1945-1971, IMF agreement was the basis of the international monetary system The US $ was agreed to be the only central reserve asset An ounce of gold was agreed to be worth US $35 International Monetary Fund (IMF) - IMF deals solely with governments - IMF objectives are to foster o Orderly foreign exchange arrangements o Convertible currencies o A shorter duration and lesser degree of balance-of-payments disequilibria - Headquarters in DC o Current managing director is Dominique Strauss-Kahn Comes from a developed country in Europe - IMF contributes to policy coordination among the major industrial countries o Major industrial countries are also referred to as the Group of Eight or G8 Includes Canada, France, Germany, Italy, Japan, UK, Russia, and US o Total IMF member-countries total 185 as of Feb 2008 IMF funding is conditional and linked to the member’s progress in implementing policies – “firm surveillance” - IMF & World Bank often viewed with suspicion – close proximity and have joint annual conferences o DC isn’t a neutral place – is viewed with lots of skepticism
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This note was uploaded on 04/30/2008 for the course CBA 300 taught by Professor Horne during the Spring '08 term at CSU Long Beach.

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02.20.08 - 1 Chapter 5 Understanding the International...

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