International Monetary Systems

12 Key excerpts on "International Monetary Systems"

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  Democratizing Money?

  Debating Legitimacy in Monetary Reform Proposals

  • Beat Weber(Author)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  2.2.6 International Monetary Regimes So far, we have looked at domestic monetary systems. But money is an international phenomenon. Whereas national currencies dominate domestic transactions, cross-border economic activity requires agree- ment among transaction partners from different currency areas on the currency to be used. In which currency does importer from country A have to pay exporter from country B? In which currency is debt in country A financed by a creditor from country B denominated? Central bank-issued money sits on top of the domestic monetary hierarchy. In international transactions, a larger international hierar- chy comes into view, which consists of a rank order among currencies. As a result of this hierarchy, some countries are able to make and receive payments in exchange for internationally traded goods and services, and service external debt in their own currency. Countries with currencies of a lower rank have to make or find a market to access foreign currency in exchange against domestic currency to make inter- national payments. This requirement to find a means to settle international obligations in a foreign currency serves as a disciplining device for the domestic economy (Mehrling, 2013). In this context, the relationship among different currencies becomes an issue for international governance. The precise relation among currencies in what is effectively an interna- tional monetary hierarchy depends on the international monetary regime. When national currencies are convertible, the exchange rate may be determined in markets. When the stability of the external value of the currency is considered important because of the extent of cross-border economic activity, the authorities may commit to a fixed exchange rate, or engage in countering excessive volatility in the foreign exchange market. In fixed exchange rate arrangements, the central bank guaran- tees a specific price for domestic in terms of foreign currency.

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  International Economics (Routledge Revivals)

  • David Gowland(Author)
  • 2010(Publication Date)
  • Taylor & Francis

    (Publisher)

  12 THE INTERNATIONAL MONETARY SYSTEM

  12.1  History

  There are three major aspects to any international monetary system:

  1. the exchange rate regime; 2. arrangements for co-operation between nations, in practice usually between their central bankers; 3. arrangements for loans to be extended to nations, either by other nations on a bilateral basis or multilaterally through an international agency.

  Any analysis must concentrate on these, whether historical or descriptive or prescriptive. Analysts may also wish to differentiate between the way the system works and the formal mechanism, rather as constitutional scholars since Bagehot have distinguished the ‘efficient’ from the ‘dignified’, the reality from the formal system.

  The modern history of the international monetary system starts with the Bretton Woods conference of 1944, which was a major part of the Anglo-American efforts to ‘reconstruct’ the world which also led to the formation of the UN, GATT and, at a domestic level, the National Health Service. Bretton Woods led to the establishment of the system which bore its name. The exchange rate regime was to be one of flexible parities, a semi-fixed system, described above, p. 120. The parities were to be adjusted in the event of ‘fundamental disequilibrium’ after a process of international consultation. In practice, this was a dead letter and the ‘efficient part’ of Bretton Woods was an informal understanding that par values would not be changed very often nor without an effort to avoid the change. In other words devaluation would not be an ‘easy’ or ‘costless’ option. The system was often called the dollar exchange system, as the parities were set in terms of dollars. Although this convention was a reflection of US dominance, it paradoxically meant that the US could not devalue without breaking the system up.

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  The Monetary System

  Analysis and New Approaches to Regulation

  • Jean-François Serval, Jean-Pascal Tranié(Authors)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 7 The Monetary System “The one who aims at becoming knowledgeable, has to deal with money regulation” 1 — Bata batra 175b INTERNATIONAL EXCHANGES – INTERACTIONS AND MONETARY ZONE COHERENCE There is no possible monetary system set-up without a regulatory system that guarantees the link, meaning the measurement language between posted numbers and exchanges, to ensure acceptance from users and to pursue social goals. Money requires a sufficient space of use that can only result from trust and jurisdictional authority, usually both intricately mixed. Logic leads us to start from where we stand in terms of regulation. We think we have sufficiently explored money as a concept to cover our general needs. We are still missing international exchanges, though. Having tried to comprehend what money is, the issue of looking at the international monetary system that, not surprisingly, has changed since WWII is now to be analysed. Even if still formally or implicitly existing as set after Bretton Woods, it has been deprived of its post-war purpose, and moreover in 1971, as we have already seen, of its mechanisms to ensure a currency basis. More recently, it has been reconsidered and completed to give face to the 2007–2008 financial crisis that hit the entire world with, until now, no definitive answers and international decisions. With consolidation of political entities, the jurisdiction where money is in use and its optimization are also at stake as a question for the international forums that may be able to find a way and decide on a new system: the G20, the IMF or any forum where major countries can convene. GENERAL FRAMEWORK As its ideogram indicates, 2 meaning both danger and opportunity at the same time, the crisis can also be used as a new start. The threat of a systemic collapse that prevailed during a few weeks during the autumn of 2007 determined some analysis about what is grounding the market economy and liberalism, of which a few points emerged

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  Global Political Economy

  Understanding the International Economic Order

  • Robert G. Gilpin(Author)
  • 2011(Publication Date)
  • Princeton University Press

    (Publisher)

  Eichengreen argues that these economic and political changes have restricted possible international monetary arrangements to either (1) an international monetary system based on freely floating exchange rates, or (2) monetary unification among groups of countries to enable creation of single currency areas managed by regional central banks. Freely floating exchange rates would be a step away from an integrated, rule-based world economy, as such an arrangement could have few, if any, rules governing such technical matters as exchange rate adjustment and liquidity creation. Under such a monetary arrangement, an individual nation could intervene in the market to guide the floating rate of its currency but could not set and hold to a targeted value. Therefore, the means to guarantee a stable international monetary system, Eichengreen has argued, is complete monetary integration; that is, creation of a single currency managed by a central bank. However, as the twenty-first century opened, the only effort to achieve monetary unity was that in Western Europe.

  Many economists and public officials believe that Eichengreen’s analysis is much too pessimistic, and few are willing to give up the search for an effective means to stabilize exchange rates through an international monetary authority, international policy cooperation, or some other mechanism. However, many would undoubtedly agree that an effective governance mechanism must soon be devised to manage international monetary affairs in order to avoid the real danger that the monetary system will disintegrate either into monetary anarchy similar to the 1930s or will fragment into regional arrangements based on such dominant regional currencies as the American dollar, the euro, or the Japanese yen. A stable international monetary system must rest on the cooperation of the major economic powers, a situation that has not been easy either to establish or to maintain.

  UNITY OR FRAGMENTATION OF THE MONETARY SYSTEM ?

  Creation of the European Monetary System (EMS) and the common currency (euro) pose a serious threat to the unity of the international monetary system. There is considerable interest and disagreement among public officials, economists, and political pundits on both sides of the Atlantic Ocean and in other parts of the globe concerning the implications of the euro for the dollar and the international economy in general. The most important questions are whether or not the euro will displace the dollar as the world’s principal currency, what the consequences for the United States would be if it did, and how the euro would affect the functioning and management of the international monetary and economic system. The large number of economic and political unknowns surrounding the euro make it impossible to provide any conclusive answers to these and other relevant questions. Nevertheless, these issues are of such moment for the future of the global economy that they must be addressed, even if only tentatively.

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  Analyzing the Global Political Economy

  • Andrew Walter, Gautam Sen(Authors)
  • 2008(Publication Date)
  • Princeton University Press

    (Publisher)

  4 The Evolution of the International Monetary System C hapters 4 and 5 discuss the political economy of international money and finance. In chapter 2 we discussed the reasons for the evolu-tion of the international trade system toward institutionalized multi-lateralism. Similarly, in this chapter we consider how the literature in political economy has tried to explain the evolution of the interna-tional monetary system. As for international trade, the international monetary system also became characterized by institutionalized multi-lateralism by the mid-twentieth century, for a similar combination of material and ideational reasons. In contrast to trade, however, multi-lateralism in international monetary arrangements peaked in the 1960s and has been in retreat since then. We emphasize the rise of private financial markets and associated political changes in explaining this trend. Although international monetary arrangements in the nineteenth century were much less politicized at the domestic level than were those for international trade, over the course of the twentieth century this became less true. And at the international level, international monetary arrangements have always been politically controversial. This has much to do with the strong tendencies toward hierarchy in global monetary and financial markets and the asymmetric consequences this has for the distribution of costs and benefits across countries. The conflict between national macroeconomic stabilization policies and international mone-tary commitments has become more acute with the reemergence of open financial markets since the 1970s. We postpone to chapter 5 a discussion of the consequences of this conflict. 86 CHAPTER 4 In order to address the question of how to explain international monetary evolution, we must first consider some preliminary issues concerning the balance between adjustment and financing in interna-tional monetary organization.

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  A Strategy for IMF Reform

  • Edwin M. Truman(Author)
  • 2006(Publication Date)
  • Peterson Institute for International Economics

    (Publisher)

  3 Role in the International Monetary System Mervyn King, in his remarks on the international monetary system at a conference, “Advancing Enterprise 2005,” on February 4, 2005, summa­ rized succinctly the view that the IMF should have a major role in ad­ dressing the proper functioning of the international monetary system: The international monetary system should be seen not as a series of bilateral rela­ tionships, but as a multilateral arrangement, albeit one where a small number [larger than the G-7] of key players can usefully communicate with each other. I think we need to rethink the role of the IMF in the international monetary sys­ tem . . . . I am not convinced that the future of the Fund is primarily as an occa­ sional international lender of last resort for middle-income countries suffering financial crises. King’s remarks suggest an IMF role that is broad and should contribute more than it does today to substantial cooperation, if not coordination, on national policies affecting the international economy and financial sys­ tem. Others are highly skeptical about international macroeconomic pol­ icy coordination and by implication the role of any international organi­ zation in fostering such coordination. For example, Horst Siebert (2005) at a conference on the IMF stated, “The best that governments can do is to follow an atmospheric coordination, i.e., exchanging information on the situation and the paradigm to be used.” This chapter examines the IMF’s role (1) in surveillance, (2) with regard to exchange rates and policies, (3) in capital account and financial-sector issues, and (4) with respect to regional arrangements. All four aspects are central to an effective role of the IMF in the international monetary sys­ tem. In general, if the IMF is to play these roles effectively, it has to be more of an umpire and not just an adviser and sometime lender. 45 Institute for International Economics | www.iie.com

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  C. Fred Bergsten and the World Economy

  • Michael Mussa(Author)
  • 2006(Publication Date)
  • Peterson Institute for International Economics

    (Publisher)

  7 The International Monetary System in the Work of the Institute MORRIS GOLDSTEIN The search for ways to improve the operation of the international mone-tary system and, in particular, to prevent and manage crises in emerging economies—including through the work of the International Monetary Fund (IMF)—has been an enduring theme in the research agenda of the Peterson Institute for International Economics. It has likewise been a topic close to the heart of its director, C. Fred Bergsten, who has made a num-ber of valuable contributions to this long-running debate. A review of the Institute’s work in this area amply demonstrates both the wide range of issues covered and their importance among the broad range of international economic policy issues that are the métier of the In-stitute. This review provides the foundation for more extensive discus-sions of key policy issues that are at the heart of the debate over the func-tioning of the international monetary system and the role of its central international institution, the IMF. Several of these issues are taken up in the following chapters. John Williamson reexamines the continuing debate over the appropriate nature of the exchange rate regime, both from the perspective of individ-ual countries and from a more systemic viewpoint. Edwin Truman then takes up a question that is a logical precursor to the analysis of target zone proposals for major currency exchange rates, long advocated by Fred 133 Morris Goldstein has been the Dennis Weatherstone Senior Fellow at the Institute since 1994. Bergsten and John Williamson—namely, whether large variations in the real effective exchange rate of the US dollar over the past three decades provide useful messages concerning desirable adjustments in economic policies or other efforts to influence the exchange rate of the dollar.

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  A Systems Perspective on Financial Systems

  • Jeffrey Yi-Lin Forrest(Author)
  • 2014(Publication Date)
  • CRC Press

    (Publisher)

  Among the regional international financial organizations, there are mainly the Asian Development Bank, Inter-American Development Bank, African Develop-ment Bank, European Investment Bank, Arab Monetary Fund, and others. This section will mainly discuss the global financial institutions. 8.5.1 The International Monetary Fund The International Monetary Fund (IMF) started its operation in 1947 and has done a great deal of work in the areas of maintaining the stability of exchange rates, eliminat-ing exchange controls, balancing international payments, and promoting international monetary cooperation. Although it was a product of the Bretton Woods system, it is still playing important roles in many areas in the current international monetary system. All nations that participated in the Bretton Woods meeting and signed the Bretton Woods Agreement before December 1, 1945, are considered the funding members of the Fund organization. Other nations that joined the organization later are known International Monetary System 325 as other member nations. The IMF organization consists of a board of governors, executive board, a managing director, and many operational agencies. The board of governors is the highest authority of the Fund organization. It consists of a director and deputy director from and named by each member nation, where the deputy direc-tor has the voting right only when the director is absent. The main authority of the board of governors includes: approve the admission of new member nations, decide on the shares of the fund, distribute the special drawing rights, determine which mem-ber nations to withdraw from the Fund organization, discuss and make decisions on important issues related to the monetary system. The board meets once a year and when necessary it holds special meetings. The executive board is a permanent establishment of the Fund organization.

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  Analytical Gains of Geopolitical Economy

  • Radhika Desai, Paul Zarembka(Authors)
  • 2016(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  The implications of this observa-tion for the US economy will be explained in the third section. However, prior to that, it is necessary to review some particularities of the banking nature of money in the capitalist economy that specially affects the issuers of key currencies. THE INHERENT DANGERS OF AN IMS BASED ON KEY CURRENCIES No amount of discussion of the GI debate can explain the real sources of instability in the IMS today. To understand this, we need to begin by ques-tioning the validity of most of the terms found in this literature and then provide some alternative concepts for a richer approach to contemporary monetary instabilities. 32 JUAN BARREDO-ZURIARRAIN “Inflows” and “Outflows” in the Balance of Payments When national and international monetary flows are analyzed, currency is still considered from a neoclassical approach; that is, as if it were a particu-lar asset that could be exchanged for any others (goods and services included). In this sense, expressions like “printing money” are often used to describe a lax national monetary policy, and “capital exports” or “imports,” or even “international flows” and “capital flight,” to depict a type of currency that travels between countries. Such metaphoric representation of international monetary relations is normally quite useful in explaining permanent disequilibria on the national balance of payments: it is usually said that an export of goods is always automatically compensated by an equivalent import of capital, whereas conversely, an import of goods is associated with an equivalent inflow of capital into the country. Nevertheless, it’s impossible to develop a valid explanation of international economic relations by this approach, unless we take the case of a simple economy where countries just trade goods and services.

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  The Rule of Law in Monetary Affairs

  World Trade Forum

  • Thomas Cottier, Rosa M. Lastra, Christian Tietje(Authors)
  • 2014(Publication Date)
  • Cambridge University Press

    (Publisher)

  I. International financial and monetary stability and domestic embeddedness of financial market instruments and currency policy First, it is important to be clear as to what the normative basis of the regulatory structure of the international financial monetary order is. 85 Arner and Buckley, ‘Redesigning the Architecture of the Global Financial System’, 37. 86 Meeting of Finance Ministers and Central Bank Governors, Paris, 18–19 February 2011, Communique´, www.g20.org/Documents2011/02/COMMUNIQUE-G20_MGM%20_18- 19_February_2011.pdf, para. 3. 87 IMF, ‘G-20 Moves Forward to Tackle Global Imbalances, IMF Survey online’, 16 April 2011, http://www.imf.org/external/pubs/ft/survey/so/2011/NEW041611A.html; G-20 Communique´, Meeting of Finance Ministers and Central Bank Governors, Washington, DC, 14–15 April 2011, www.g20.org/Documents2011/04/G20% 20Washington%2014-15%20April%202011%20-%20final%20communique.pdf. 88 C. Brummer, Soft Law and the Global Financial System – Rule Making in the 21st Century (Cambridge University Press, 2012). taking stock 31 Three aspects are crucial in this regard: first, financial and currency stability, as essential elements of any international financial and monetary order, are global public goods. 89 Second, the domestic embeddedness of financial market products is today essential also for monetary issues in general. Financial market products are inherently linked to a specific domestic legal order; they are indeed the progeny of domestic jurisdiction. For instance an investor buying shares in a Luxembourg investment fund is trusting not only the issuer, but also Luxembourg’s well-known quality of legislation and administrative practices in the area of finance. This is a unique feature of financial market products. Unlike physical products and most services, financial market products always feature a particular jurisdiction.

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  International Business

  Theory and Practice

  • Riad Ajami, Jason G Goddard(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  The violent fluctuations in exchange rates ever since the inception of the floating-rate era have raised serious questions about the efficiency and desirability of the present arrangements for settlement of international financial obligations. It is evident that the system has not proved to be perfect, and there have been several adverse effects, especially for the less-developed nations of the world. Some of the main issues that have to be addressed in this context are the following:

  1. International exchange-rate stability

  2. Enhancement of international liquidity

  3. A more equitable international monetary system from the point of view of the LDCs

  4. Bank reform in national markets (as discussed in the Asian financial crisis section)

  INTERNATIONAL EXCHANGE -RATE STABILITY

  While there is general agreement that the current state of violent fluctuations in exchange rates is not desirable, there is no definite agreement on how this should be resolved, if such resolution is at all possible.

  Some proponents of the extreme view seek a return to the gold standard, citing the stabilizing role of gold and the near-complete exchange stability the world enjoyed during the days of the gold standard. Conditions have since changed drastically, however, and it is hardly likely that there would be enough gold to back the enormous volume of international obligations now in circulation. Another proposal to restore international exchange-rate stability is to return to fixed exchange rates. It is argued that a return to fixed rates would reduce international currency volatility, which would improve international trading efficiency and remove the costs involved in avoiding possible losses because of currency fluctuation. Fixed rates are also claimed to have a moderating influence on domestic monetary and fiscal policies and engender a conservative approach that fosters macroeconomic stability. Moreover, fixed rates would allow a consistent approach toward domestic resource allocation, and the patterns of domestic resource allocation would not have to change to take into account major movements in exchange rate and competitive positions of different industries. Fixed exchange rates also do not permit speculation, which has caused serious disruption in the international markets and substantial losses to persons involved in international trade transactions.

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  Reforming the IMF for the 21st Century

  • Edwin M. Truman, Edwin Truman(Authors)
  • 2006(Publication Date)
  • Peterson Institute for International Economics

    (Publisher)

  S., and Philip Turner. 2005. Intervention: What Are the Domestic Consequences? In Foreign Exchange Market Intervention in Emerging Markets: Motives, Techniques, and Im-plications. BIS Papers 24. Basel: Bank for International Settlements, Monetary and Eco-nomic Department. Mussa, Michael. 2005. Sustaining Global Growth While Reducing External Imbalances. In The United States and the World Economy: Foreign Economic Policy for the Next Decade, C. Fred Bergsten and the Institute for International Economics. Washington: Institute for International Economics. Prasad, Eswar. 2005. Next Steps for China. Finance and Development 42, no. 3 (September). US Treasury. 2005. Report to the Congress on International Economic and Exchange Rate Policies (May). Washington. CURRENCY MANIPULATION AND ENFORCING THE RULES 155 6 Revamping the International Monetary System JOHN WILLIAMSON The central purpose of the International Monetary Fund is, even though it is not expressed clearly in its Articles of Agreement, promotion of max-imum output consistent with limiting the imbalances that threaten crises. The main instrument that the Fund wields to further this objective is its surveillance over member countries, which takes the forms of its biannual publication, World Economic Outlook, and its annual bilateral discussions with each member. It is the contention of this paper that the effectiveness of this surveillance is limited primarily by the absence of any vision of what a well-balanced world economy would look like. Absent such a vi-sion, the best that surveillance can hope to do is identify occasional in-stances of grossly antisocial national behavior, such as the US fiscal deficit or the undervaluation of the renminbi. The question asked in this chapter is whether one could conceive of using such a vision as the basis for creating a framework of obligations.

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