1. INTERNATIONAL MONETARY SYSTEM

2. INTRODUCTION What is an international monetary system? International Monetary Systems are sets of internationally agreed rules, conventions and practices that facilitate international trade, cross border investment and generally the reallocation of capital between nation states.

3. INTRODUCTION Exchange Rate regimes International Liquidity International Monetary Fund (IMF) Adjustment Process Currency Blocks (EMU & ECU)

4. A B RIEF H ISTORY OF THE I NTERNATIONAL M ONETARY S YSTEM Pre 1875 : Bimetallism 1875-1914 : Classical Gold Standard 1915-1944 : Interwar Period 1945-1972 : Bretton Woods System 1973-Present : Flexible (Hybrid) System

5. T HE G OLD S TANDARD S YSTEM (1875--1914) Introduction 3 Sub Variants Gold Specie Standard Gold Bullion Standard Gold Exchange Standard

6. R ULES OF THE GAME Fixed Ratio Unlimited convertibility at any time Free Flow of gold Maintaining Gold & Currency proportionately

7. A DVANTAGES OF THE G OLD S TANDARD Imposes Discipline on policy makers Anti-Inflationary System Exchange Rate are more stable and predictable

8. D RAWBACKS Constraints on the use of monetary policy to fight unemployment Rigid Discipline Maintaining Gold Parity Free Trade of Gold Free Convertibility

9. T HE B RETTON W OODS S YSTEM (1946-1971) Introduction Features Conversion of US dollar into Gold Fixed parities by other member countries Borrowing from IMF Adjustable Peg

10. B RETTON W OODS S YSTEM : 1945-1972 German mark British pound French franc U.S. dollar Gold Pegged at $35/oz. Par Value

11. W ORKING OF THE B RETTON W OODS S YSTEM

12. C OLLAPSE OF B RETTON W OODS (1971) Dollar as the Key currency. Smithsonian Agreement (1971) US$ devalued to 1/38 oz. of gold. 1973 The US dollar is under heavy pressure, European and Japanese currencies are allowed to float Flexible exchange rates declared acceptable Gold abandoned as an international reserve

13. T HE P RESENT F LOATING E XCHANGE R ATE S YSTEM (1973- PRESENT ) Dollarisation & Euroisation Currency Board Arrangement Conventional Fixed Peg Arrangements Pegged Exchange Rates within Horizontal Bands Crawling peg Crawling Band Managed Floating with no Pre-announced Path for the Exchange Rate Independently Floating

14. D EVALUATION V/ S R EVALUATION Fixed Exchange System Floating Exchange System Current Account Capital Account (FDI Inflows) Economy

15. INTERNATIONAL MONETARY FUND

16. The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries; in particular those with an impact on exchange rates and the balance of payments Headquarters - Washington, D.C., USA INTRODUCTION

17. HISTORY Created in July 1944 during the United Nations’ Monetary and Financial Conference Formally organized on December 27, 1945 Mount Washington Hotel (Bretton Woods, New Hampshire, United States of America)

18. PURPOSE To stabilize exchange rates and assist the reconstruction of the world's international payment system Countries contributed to a pool/fund at a pre- determined ratio which could be borrowed from, on a temporary basis, by countries with payment imbalances

19. IMF TODAY The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment Shortfall in revenue- agreement to sell part of the IMF's gold reserves. Decision to propose a new framework for the fund, designed to close a projected $400 million budget deficit over the next few years Includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals

20. INTERNATIONAL LIQUIDITY AND SDR S International Liquidity means the relative amount of resources available to a nation’s monetary authorities that could be used to settle a balance of payments deficit. For countries with free trading regimes and floating exchange rates, ‘international liquidity’ may more properly be thought of as the foreign exchange assets and credit available to residents of a country that would allow them to import from abroad at their discretion.

21. SPECIAL DRAWING RIGHTS (SDR) Introduction Rational to create SDR SDR Valuation SDR Interest Rate Limitations of SDR

22. PROBLEM OF ADJUSTMENT Balance of Payment (BoP) What if there is Net Surplus? What if there is Net Deficit? Financing the Gap Adjustment Process How Adjustment Process takes place? To Reduce Imports and to Increase Exports Encourage Capital Inflows

23. E CONOMIC AND M ONETARY UNION Introduction Stage 1 (1st July 1990-31st December 1993) Stage 2(1st January 1994-31st December 1998) Stage 3(1st January 1999 onwards) Benefits

24. Group Members: AKASH ARORA08-706 RISHAL BHIDE08-710 TEJESHREE BOLE08-712 HARSH CHAUHAN08-715 BHAVEN CHHEDA08-716 DIPESH JAIN08-728 ZECECA MEHTA 08-739 REEMA RIJHWANI 08-748 ROHIT VIRKAR08-756