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THE EVOLUTION OF THE GLOBAL MONETARY SYSTEM

Fixed Exchange Rate

Asian Financial Crisis

(1997-1999)

Bretton Woods and the International Monetary Fund

(1944-1973)

The Third World Debt Crisis

(1982-1989)

Classical Gold Standard

(1870-1914)

- August 1982, Mexico announced it could not meet scheduled repayments on its $ 100 billion of external debt

-47 debtor nation were negotiating with their creditors and international organization such as the IMF and World Bank to reschedule payments

-The negotiations involved possible changes in magnitude, maturity, and currency composition of debt.

-Clearly, if countries borrowed in their own currencies they could always repay debts; they have unlimited power to “print” their currencies

(1944) - The meeting in Bretton Woods was the prevention of another breakdown of the international financial order

Bretton Woods Agreement - the US dollar freely convertible into gold and to have the values of other currencies fixed in US dollar

- United States required to maintain a reserve of gold, and other countries required to maintain a reserve of US dollars

(1962) - French wanted to exchange US dollars for gold as they are doubtful about the future value of the dollar and they objected US as pivotal role in the Bretton Woods system

- The countries against US as the pivotal role were because of political and seigniorage gains

  • Started before world war 1
  • Convert paper money for gold are at a fixed priced
  • Each country held a balance of gold in its national treasury
  • Governments maintain enough gold in their reserves
  • Governments would buy gold from other countries to update with the growing economy.
  • Government would sell gold to other countries to reflect less money in the economy.
  • The collapse of a large korean company, under $6 billion debt
  • July 2, 1997, Thailand devaluation of thai baht. The crisis was due to the speculators attacks on the thai baht.
  • Nov 1997, Indonesia reached its lowest record and this lead to the resognation of president suharto
  • Indonesia has lost 13.5% of the countries GDP.
  • Indonesia suffered economy and social collapse.
  • ASEAN had a debt of 180 % in their debt to GDP ratio.
  • Hong Kong dollar, with the peg to the US dollar being maintained only by large run-ups in interest rates and support by the People’s Bank of China, and the Chinese riminbi.
  • Fiscal policies has been implemented to revived the financial crisis.

GROUP MEMBER

Emerging Era

GROPU

1. Nur Atikah Binti Azman A143322

2. Nur Faridah Binti Abdul Rashid A143343

3. Khairunnisa' Binti Asul Kahar A143386

4. Siti Munirah Binti Rosli A143302

2020

1997

1985

1973

1944

1860

1920

Introduction Of Euro

Inter War Years

1923-1933

The Plaza Agreement Era

(1985)

The flexible Exchange Rate

(1973-1985)

Classical Gold Standard

  • Delors Report of 1989. Jacques Delors, who was President of the European Commission, introduced a three-stage plan.
  • Stage 1, which began on July 1, 1991, removed all controls on the movement of capital within the European Community.
  • Stage 2, which began on Januari 1, 1994, involved the establishment of the European Monetary Institute which coordinated the separate national central banks in an effort to steer the Community towards a common currency.
  • Stage 3, began in January 1999, and involved the establishment of “irrevocably fixed exchange rates”.
  • 2002, the old monies had been entirely withdrawn, and the euro was in widespread use, making it much easier and cheaper to travel and do business throughout the Euro-zone

  • World war 1 (1914) has eroded the credibility of the gold standard.
  • (1918-1926) started the period of flexible exchange rates
  • (1926) The gold standard has been readopted to bring inflation under control.
  • (1928) France government accepted only gold and no more foreign exchange
  • (1931) France government does not accepted pound sterling and only change it to gold
  • (1933) Britain and other countries has stopped using the pounds as they are no longer convertible.

- The rapid increase in oil prices after the oil embargo worked to the advantage of the US dollar.

-The strength of the dollar allowed the United States to remove controls on capital outflows in January 1974

-The practice of paying for oil in US dollar meant that the buyer needed dollar and the seller (OPEC) needed to invest their dollar earnings.

-Flexible exchange rates adopted were deemed to be acceptable to IMF members, and central banks were permitted to intervene and manage their floats to prevent undue volatility.

-Gold was officially demonetized, and half of the IMF’s gold holdings returned to the members and the other half was sold, and the proceeds were to be used to help poor nations.

- Economic summits of the world’s leaders were organized in which the volatility of exchange rates became a central issue

-These summits held in the Louvre Accord reached in Paris in 1987, in which the G-7 industrial countries decided to cooperate on exchange-rate matters to achieve greater stability.

- This agreement marked a shift toward managing float

- The agreement to intervene jointly in foreign exchange markets came in conjunction with an agreement for greater consultation and coordination of monetary and fiscal policy.

Floating Exchange Rate

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