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Kultur Dokumente
10
10-2
Large and inefficient state sector heavy subsidies Government debt risen to 60% of gross domestic product Rampant inflation IMF focus
Reduce inflation Stabilize value o f currency Privatization Reduction of subsidies Government reforms
10-3
The institutional arrangements that countries adopt to govern exchange rates Dollar, Euro, Yen and Pound float against each other Floating exchange rate: Foreign exchange market determines the relative value of a currency
10-4
Some countries use other institutional arrangements to fix their currencys value Pegged exchange rate
Value fixed relative to a reference currency Hold value within range of a reference currency Set of currencies are fixed against each other at some mutually agreed upon exchange rate
Dirty float
10-5
Roots in old mercantile trade. Inconvenient to ship gold, changed to paperredeemable for gold. Want to achieve balance-of-trade equilibrium
Japan
USA
10-6
Gold
10-7
Post WWI, war heavy expenditures affected the value of dollars against gold
US raised dollars to gold from $20.67 to $35 per ounce
10-8
Bretton Woods
In 1944, 44 countries met in New Hampshire Countries agreed to peg their currencies to US$ which was convertible to gold at $35/oz. Agreed not to engage in competitive devaluations for trade purposes and defend their currencies Weak currencies could be devalued up to 10% w/o approval IMF and World Bank created
10-9
Created to police monetary system by ensuring maintenance of the fixed-exchange rate Promote intl monetary cooperation and facilitate growth of intl trade Wanted to avoid problems following WW1, through A) Discipline Maintaining a fixed exchange rate imposes monetary discipline, curtails inflation , Brake on competitive devaluations and stability to the world trade environment
10-10
foreign currencies to countries having balance-of-payments problems Adjustable parities: Allow countries to devalue currencies more than 10% if balance of payments was in fundamental disequilibrium
Lend
10-11
Principal duties
Surveillance of exchange rate policies (No longer fixed rate exchange) Financial assistance (including credits and loans) Technical assistance (expertise in fiscal/monetary policy)
10-12
Sources of funds
182 nations pay into fund according to the size of their economy Funds remain their property Borrower repays loan in 1 to 5 years, with interest No nation has ever defaulted; some are given extensions
10-13
Open to any country willing to agree to its rules and regulations Must pay a deposit (quota) Quota size reflects global importance of a nations economy Quota determines voting powers
10-14
Largest contributors
Fig 10.0
5.7
5.1
5.1
10-15
International Bank for Reconstruction and Development (IBRD) Purpose: To fund Europes reconstruction and help 3d world countries. Overshadowed by Marshall Plan, Turns to development Lending money raised by WB bond sales
Agriculture Education Population
10-16
Pressure to devalue dollar led to collapse President Johnson financed both the Great Society and Vietnam by printing money
Countries agreed to revalue their currencies against the dollar March 19, 1972, Japan and most of Europe floated their currencies In 1973. Bretton Woods fails when key currency (dollar) is under speculative attack
10-17
10-18
Floating rates acceptable Gold abandoned as reserve asset IMF quotas increased
IMF continues role of helping countries cope with macroeconomic and exchange rate problems
10-19
More volatile: Oil crisis -1971 Loss of confidence in the dollar - 1977-78 Oil crisis 1979, OPEC increases price of oil
Unexpected rise in the dollar - 1980-85 Rapid fall of the dollar - 1985-87 and 1993-95 Partial collapse of European Monetary System 1992 Asian currency crisis - 1997
10-20
10-21
10-22
Floating:
Monetary policy autonomy Restores control to government Trade balance adjustments Adjust currency to correct trade imbalances
Fixed: Monetary discipline .Speculation Limits speculators Uncertainty Predictable rate movements Trade balance adjustments Argue no link between exchange rates and trade Link between savings and investment
10-23
10-24
Peg own currency to a major currency ($). Popular among smaller nations Evidence of moderation of inflation
Country commits to converting domestic currency on demand into another currency at a fixed exchange rate Country holds foreign currency reserves equal to 100% of domestic currency issued
Currency Boards.
10-25
Currency crisis
when a speculative attack on a currencys exchange value results in a sharp depreciation of the currencys value or forces authorities to defend the currency Loss of confidence in the banking system leading to a run on the banks When a country cannot service its foreign debt obligations
Banking crisis
10-26
10-27
Common causes:
High inflation Widening current account deficit Excessive expansion of domestic borrowing Asset price inflation
10-28
Peso pegged to U.S. dollar Mexican producer prices rise by 45% without corresponding exchange rate adjustment Investments continued ($64B between 1990 -1994 Speculators began selling pesos and government lacked foreign currency reserves to defend it IMF stepped in
10-29
Financial markets loss of confidence in Russias ability to meet national and international payments
Led to loss of international reserves and roll over of treasury bills reaching maturity
10-30
High inflation
Artificial low prices in Communist era Shortage of goods Liberalized price controls Too many rubles chasing too few goods
10-31
Defacto devaluation of the ruble Unilateral restructuring of ruble-denominated public debt 90-day moratorium on foreign credits repayment Hike in interest rates to defend ruble Duma rejects measures designed to alleviate problems.
10-32
10-33
Factors leading to the Asian financial crisis of 1997 The investment boom Excess capacity The debt bomb Expanding imports
10-34
Mid 1997 several key Thai financial institutions were on the verge of default
Result of speculative overbuilding Excess investment (dollar denominated debt) Deteriorating balance-of payments position 17.2 billion in loans, given with restrictive conditions
10-35
Cronyism. Too much money, dependence on speculative capital inflows. Lack of transparency in the financial sector. Currencies tied to strengthening dollar. Increasing current account deficits. Weakness in the Japanese economy
10-36
Inappropriate policies:
People behave recklessly when they know they will be saved if things go wrong Foreign lending banks could fail Foreign lending banks have paid price for rash lending IMF has grown too powerful
Lack of Accountability
10-37
Currency devaluation Declining investment Rising prices Rising unemployment Rising poverty Rising resentment?
10-38
Corporate-government relations