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International Monetary System - Coggle Diagram

- - - - a “double standard” in the sense that free coinage was maintained for both gold and silver
      - Countries on the bimetallic standard often experienced the well-known phenomenon referred to as Gresham’s law
    - - First full-fledged gold standard, a monetary system in which currencies are defined in terms of their gold content, was established in 1821 in Great Britain.
      - Under the gold standard, the exchange rate between any two currencies will be determined by the gold contents
      - Price-specie-flow mechanism
        
        an automatic correction of payment imbalanced between countries operating under the gold standard
      - Key shortcomings of the gold standard
        
        Supply of newly minted gold is so restricted that the growth of world trade and investment can be seriously hampered for lack of sufficient monetary reserves
        
        No mechanism to compel each major country to abide by the rules of the game
    - - World War I (1914-1929)
        
        Fight between factions
        
        Treaty (mainly Britain, France, Russia and then the United States, Brazil)
        
        Union (mainly Germany, Austria-Hungary, Bulgaria and Ottoman).
        
        Result
        
        Only benefits the imperialist countries that win the battle, especially the US.
        
        The world map is divided
      - World War II (1929-1944)
        
        In 1929: The Great Depression began after the stock market crash, especially in Austria, Germany, and the United States.
        
        In September 1931: the UK suspends the gold standard and let the pound float.
        
        In April 1933:The United States got off gold after experiencing a spate of bank failures and outflows of gold.
        
        In 1934: The US increased the price of gold to 35 USD/ounce, manipulating the international gold market.
        
        In 1936: France abandoned the gold standard.
        
        In 1944: Conference Bretton Woods.
    - - Bretton Wood system established in 1944
      - To restore the world economy as well as create a new international monetary order.
      - International Monetary Fund (IMF)
        
        an international organization that promotes global economic growth and financial stability, encourages international trade, and reduces poverty.
      - SDRs
        
        an artificial currency instrument created by the International Monetary Fund, which uses them for internal accounting purposes.
    - - The flexible exchange rate regime that followed the demise of the Bretton Woods system was ratified after the fact in January 1976 when the IMF members met in Jamaica and agreed to a new set of rules for the international monetary system.
      - The key elements of the Jamaica Agreement include:
        
        Flexible exchange rates were declared acceptable to the IMF members.
        
        Gold was abandoned as an international reserve asset.
        
        Non-oil-exporting countries and less-developed countries were given greater access to IMF funds.
- - - - Provide an efficient mechanism to restore balance of payments equilibrium whenever it is disturbed
    - - Provide safeguards to prevent a crisis of confidence in the system resulting in panic flights from one reserve asset to another
    - - It should be able to provide the world economy with sufficient monetary reserves to support the growth of international trade and investment
  - - - There are no safeguards to prevent a crisis.
      - Exchange rate uncertainty can hinder international trade.
    - - National policy of autonomy (independence).
      - Easier external adjustment.
- - - - The free floating currency system is the predominant system of foreign exchange that is prevalent in the world today.
    - - A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.
    - - often the agency that identifies this fixed exchange rate,The central bank is often the agency thatidentifies this fixed exchange rate
    - - must remain within a narrow margin of 2% relative to a statistically identified trend for six months or more
    - - -A crawling peg is a band of rates that a fixed-rate exchange rate currency is allowed to fluctuate,
    - - entails a spot market exchange rate that remains within a margin of 2 percent for 6 months or more and is not floating.
    - - Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards
    - - A currency board is an extreme form of a pegged exchange rate. Management of the exchange rate and the money supply
    - - Adopting such an arrangement implies complete surrender of the monetary authorities’ control over the domestic monetary policy.
- - - - Many companies with foreign currency bonds were forced to go bankrupt
  - - - Triple incompatibility shows that it is difficult, if not impossible, to have all three conditions:
        
        Free international capital flows
        
        Independent monetary policy
        
        Fixed exchange rate
      - Inviting speculative attacks at a time of financial vulnerability
  - - - The sudden collapse of the bhat affected a flight of terror away from other Asian countries
- - - - Zapatistas armed forces rebelled
      - current account deficit
      - Redirect investment to developing countries
    - - At the end of September, José Francisco Ruiz Massieu was assassinated
      - Many companies reported a decrease in profits
      - Government bond yields start to rise
      - At the end of October, the governor of the central bank of Mexico announced that Mexico's foreign exchange reserves were only 17.12 billion dollars.
    - - The sudden increase in foreign debt has caused the balance sheets of Mexican enterprises and banks to deteriorate. As a result, the Mexican economy fell into a real crisis.
      - On December 20, 1994, the peso depreciated sharply. The government intervened to reduce the rate of devaluation, but it was not effective and lost a lot of foreign exchange reserves of the state. On the 22nd, the government had to declare the peso floating.
  - - - (ii) labor market inflexibility
      - iii) contagion from the financial crises in Russia and Brazil.
      - i) the lack of fiscal discipline
    - - in the second half of the 1990s, A strong peso hurt exports from Argentina and caused a protracted economic downturn
      - the abandonment of the peso–dollar parity in January 2002
        
        Caused severe economic and political distress in the country.
      - 1.the peso was first linked to the U.S. dollar at parity in February 1991 under the Convertibility Law, initial economic effects were quite positive
        
        Argentina’s chronic inflation was curtailed dramatically and foreign investment began to pour in, leading to an economic boom.
      - 4.In the late 1990s, the government encountered increasing difficulty with rising debts internal and external debts.
      - 5.the abandonment of the peso–dollar parity in January 2002.In early 2005, bondholders finally agreed to the restructuring, under which they took a cut of about 70 percent on the value of their bond holdings.