Power, Money, and Trade- ch 8

Power, Money, and Trade- ch 8 - Ozan Pamir Chapter 8 The...

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Ozan Pamir Chapter 8 The Politics of International Monetary Relations Throughout the last decade political scientists’ attention shifted from the trade issues to international monetary issues. The Characteristics of Monetary Orders Functions of Money 1. A measure/ unit of value 2. A medium of exchange 3. A store of value If money doesn’t exist then the economy is called barter economy. Money has some features of collective goods: Exclusion is possible but difficult Non-rival consumption is an essential (the more a currency is used, the more effective it is.) A government is necessary to provide supply in the domestic economy Exchange rates can be fixed or floating. Two main types of monetary reserves; o Commodity (precious metals i.e. gold and silver) o National currency o A third one is the money created by an international agency but they have historically played minor reserve roles. So not that important. According to W.M Scammel, a successful international monetary system must have four integrated parts. A medium of international exchange Adequate ties between nations’ financial institutions Some method of managing balance of payments adjustments There must be management of the international monetary system.
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o There is a clear role for political authority to play and this statement captures some of the issues involved with hegemonic stability theory. Exchange Rates: Fixed versus Floating Exchange Rate: Simply the price of one currency in terms of another. To understand why the value of a currency changes over time, think of the price of a currency in its own terms. When we want to switch money from one currency to another, we must pay a price for the money we are buying. If there is a lot of currency available, the price will fall; if the currency is scarce, the price will rise. The size and nature of a country’s economy shapes the supply of a currency.
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This note was uploaded on 02/06/2012 for the course POLI 354 taught by Professor Brawley during the Fall '11 term at McGill.

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Power, Money, and Trade- ch 8 - Ozan Pamir Chapter 8 The...

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