Notes on Lecture 17 - Globalization: International Monetary...

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Globalization: International Monetary Relations A puzzle For years, European states maintained their own national currencies, but tried to coordinate their value. Finally adopted a common currency, the euro. But some EU members – UK – have kept their own currency. Why? Does it matter? 1. Monetary systems International monetary regimes An international monetary regime is an arrangement that most countries accept to govern relations among currencies. Created by government decisions to fix or float. Can be formal or informal. Regional monetary regimes are also possible. Countries in green are countries in Africa using the same monetary system (West African Monetary Union) Elements of monetary regimes Do currencies float, or are they fixed? Fixed examples: gold standard, Bretton Woods (1945-1973). Floating example: contemporary system. Monetary standards Will there be a common base or standard ? Commodity standard: a good with some intrinsic value: Precious metals (gold, silver). Commodity-backed paper standard: you have one currency based on one commodity, and other currencies were tied to that one fixed currency Bretton-Woods Monetary Syste, Governments issue paper currency that has a fixed value in terms of a commodity. Bretton Woods: U.S. dollar fixed to gold, and all other currencies to the dollar is an example of a commodity-backed paper good. Monetary standards, continued National paper currency standard: National currencies backed only by government commitments to maintain their value. No commodity behind dollars, only up to the government not to overprint and maintain value
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A few major (“key”) currencies are used as the basis for international exchange. Euros or US Dollars, sometimes the Japanese Yen, but since Japan is facing economic problems, not so much This has been the system since 1973, with the $ and € as key currencies. International monetary systems We call a monetary regime an international monetary system if it is: Formally agreed Widely recognized Widely understood and accepted rules Two modern examples: Classical gold standard, 1870-1914 Bretton Woods, 1945-1973 Our current monetary system isn’t considered an international monetary regime because it isn’t accepted everywhere 2. Interactions International interaction All countries benefit from a stable monetary arrangement.
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This note was uploaded on 03/15/2012 for the course POLI SCI 103 taught by Professor Pevehouse during the Fall '08 term at University of Wisconsin Colleges Online.

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Notes on Lecture 17 - Globalization: International Monetary...

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