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Unformatted text preview: The International Monetary System 18:01 History of the International Monetary System The Gold Standard, 1876-1913 One country after another set a par value for its currency in terms of gold. The gold standard gained acceptance in W. Europe in the 1870s. U.S : 1879. Each country set the rate at which its currency unit could be converted to a weight of gold ($20.67 or £4.2474/ounce) Dollar pound exchange rate= $4.8665/£ The exchange rates between currencies were fixed beauce fixed parity rate in terms of gold. Also limit the country’s expansion of money supply. The Interwar Years and WWII, 1914-1944 During WWII and the 1920s currencies could fluctuate in terms of gold and in relation to each other. But problems because of selling short (international speculators sold the weak currencies short causing them to fall further in value) Selling short is a speculation technique in which and individual speculator sells an asset such as a currency to another party for delivery at a future date but does not own the asset yet. Strong currencies : fluctuations could not be offset excepta t exorbitant cost. => Geat Depression in the 1930s. Devaluation of the U.S dollar ($35 per ounce) => new gold standard Bretton Woods and the International Monetary FUnd, 1944 Bretton woods, 1944, the Allied Powers met to create a new post war international monetary system. => U.S dollar-based monetary system and 2 new institutions : IMF and World Bank. IMf aids countries with BOP or exchange rates problems. WB helps general eco development and recovery. Only the dollar is convertible into gold. Therefore, each currency estabilished its exchange rate vis-a-vis the dollar. Devaluation allowed within 10% => gold exchange standard Special Drawing Right (SDR) is an international reserve asset created by the IMF to supplement existing foreign exchange reserves. Provide a base against which some coutries peg the exchange rates for their currencies. The SDR is currently the weighted average of four major currencies : $,£,¥ and euro. Fixed Exchange Rates, 1945-1973 Widely diverging monetary and fiscal policies, different rates of inflation, and external shocks eventually resulted in the Bretton Woods system’s demise as U.S records shocks eventually resulted in the Bretton Woods system’s demise as U....
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This note was uploaded on 04/02/2012 for the course MGCR 2049 taught by Professor Edwardbierbrier during the Spring '10 term at McGill.
- Spring '10