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Overview of the International Monetary System

Chapter five discusses the international monetary system, including the gold standard, the role of the IMF, World Bank, and the Bank for International Settlements. It explains fixed and floating currency exchange rates, the Jamaica Agreement, and the Euro's significance in the EU. Additionally, it covers balance of payments accounts and Special Drawing Rights as international reserve assets.

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2 views13 pages

Overview of the International Monetary System

Chapter five discusses the international monetary system, including the gold standard, the role of the IMF, World Bank, and the Bank for International Settlements. It explains fixed and floating currency exchange rates, the Jamaica Agreement, and the Euro's significance in the EU. Additionally, it covers balance of payments accounts and Special Drawing Rights as international reserve assets.

Uploaded by

Alif Sulthon
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

chapter five

Understanding the
International Monetary System

McGraw-Hill/Irwin
International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserv
Learning Objectives

• Explain the functioning of the gold standard


• Describe the purposes of the IMF
• Appreciate the accomplishments of Bretton
Woods system and the ensuing developments
shaping the world monetary system
• Describe the purpose of the World Banks
• Discuss the purpose of the Bank for
International Settlements

5-3
Gold Standard

• Gold Standard
– The use of gold at an established number of
units per currency
• Bretton Woods
– The New Hampshire town where treasury
and central bank representatives met near
the end of World War II to establish the IMF,
the World Bank, and the gold exchange
standard

5-4
International Monetary Fund

• International Monetary Fund (IMF)


– Institution that coordinates multilateral
monetary rules and their enforcement
• Triffin paradox
– The concept that a national currency that is
also a reserve currency will eventually run a
deficit, which eventually inspires a lack of
confidence in the reserve currency and
leads to a financial crisis.

5-5
World Bank

• World Bank
– Institution that focuses on funding of
development projects
• Bank for International Settlements
– Institution that is the central bank for central
bankers

5-6
Currency Exchange Rate Systems

• Fixed currency exchange rates


– Rates that governments agree on and undertake to
maintain
• Floating currency exchanges rates
– Rates that are allowed to float against other
currencies and are determined by market forces
• Jamaica Agreement
– The 1976 IMF agreement that allows flexible
exchange rates among members

5-7
Current Currency Exchange Rate
Arrangements

• Exchange arrangements with no


separate legal tender
• Currency board arrangements
• Other conventional fixed peg
arrangements

5-8
Euro

• Currency of the European Union

• 12 EU members have joined the


European Monetary Union

5-9
BOP Accounts
Table 5.1

• Current account
– Records a country’s exports and imports in
goods and services
• Goods or merchandise account
• Services account
• Unilateral transfers

5-10
BOP Accounts

• Capital account
– Records the net changes in a nation’s international
financial assets and liabilities
• Direct investments
• Portfolio Investments
• Short-term capital flows

• Official Reserves account


– Records the assets held by the government; gold,
foreign currencies, and accounts in foreign banks; a
balance of the country’s foreign currency

5-11
Table 5.1 U.S. International
Transactions (millions of dollars)

5-12
Special Drawing Rights

• Special Drawing Rights (SDR)


– An international reserve asset established
by the IMF
– The unit of account for the IMF and other
international organizations

5-13

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