1. The International Monetary System

2. About the IMS The means for exchanging currency/money
Measures of monetary wealth of countries
Gross Domestic Product (GDP)
Gross National Income (GNI)
Country
GDP (IMF 2018)
GDP p/c in PPP(IMF 2018)
United States
$20.5 T (1)
$59,495 (11)
China
$13.5 T (2)
$16,624 (79)
Japan
$5 T (3)
$42,659 (28)
Germany
$4 T (4)
$50,206 (17)
India
$2.7 T (7)
$7,714 (122)
Nigeria (1st non-EE GS)
$400 M (31)
$5,927 (129) EU
$19.1 T
$38,370 (32-bt. SP & IT)

3. IMS Interdependency

4. Currencies in Global Foreign Exchange Reserves
interdependency
Global Currency Flows
Most traded currency?
U.S. dollar- 88% of world’s trade
2nd place?
Euro- 33%
Note: Total is 200% -currency always has a trading pair
Primary banking centers?
Currencies in Global Foreign Exchange Reserves
2004
$1.9 T
2007
$3.3 T
2010
$4 T
2018
$5.3 T
Global currency exchange

5. #1 London #2 NYC #5 Tokyo #3 Singapore #4 Hong Kong

7. Interdependency How the GS became indebted
Post WWII- colonies gained independence
Reliance on primary resources
Cash crops
Raw materials
Desire to industrialize
Needed to borrow $

8. Interdependency & GS Debt
GN Banks
GS States
Oil States
GN banks-need $ to lend
Oil states- Invest petrodollars to earn interest
GN: Lend $ to make interest
GS: Export goods to GN
GS= Lots of debt
Oil states- more demand
GS: Borrow money to buy oil

9. 20th & 21st century interdependency
Economic crisis in one country contagion
Where it all began
Great Depression 1929
Next - Mexico, 1982
Why couldn’t Mexico declare bankruptcy?
Followed later by…
Crisis
Year
Mexico “Tequila Crisis”
1994
“Asian Flu” Crisis
1997
Russian “Ruble Crisis”
1998
Argentina
2001, 2014
Global Recession (US, EU)
2008
Eurozone
2010

10. Brief History

11. Basis for Modern System
European exploration, colonization
British domination set Gold Standard
What’s Gresham’s Law?
Clipping, altered alloy content
Bad $ drives out good
Why is it significance?
Set equivalence
Established fixed exchange rates
Provided stability
1840 to ~WWI based on £

12. Post WWII: US Hegemony US needed: Accomplished by:
Pol. & econ. stability
Allies, trade partners
Push democracy, capitalism
Accomplished by:
US as central banker
Set Gold Standard (1944)
US$35=1 oz. gold
Foreign aid
Military Aid
MNCs

13. End of US Gold Standard Why did system end? Big strain on U.S.
$ held outside of US
$ out by MNCs
↓ exports
↑ oil prices, cartel
Vietnam War
Domestic $ problems
New competition
WG, Japan
Nixon delinks $

14. Fixed v. Floating Exchange Rate System
Currency is commodity
Value determined by int’l demand
Harder for gov’t to control fluctuations
Can adjust internally and externally
Buy/sell currency
Weakest economies most affected- GS
Some choose to peg
Some adopt foreign currency
Each currency fixed to 1
Set by price to gold
Central bank of hegemon affects everyone else
Internally adjust only
Inflation, interest rates, gov’t spending, taxation
Buying/selling currencies isn’t worthwhile

15. Pegging Currencies What are the benefits and problems of pegging?
Stability
Ties
Ex-pats
Common language
Familial ties with émigrés
Problems
Float at market rates
If dollar, euro, yen, etc., too strong, need to adjust
Domestic issues- can’t hold peg

16. Adopt Foreign Currency
Why adopt a foreign currency?
Unstable
No faith in gov’t
Worthless
Imports
Examples:
Dollarization
EX: Ecuador, Zimbabwe
European euro
European microstates
Unofficial 2nd currency
Cambodia, Panama

17. Oh, Mugabe! What is Zimbabwe’s situation? 100 T dollars ≠ bread
Adopted $ in 2009
Use rand, pounds, others
2016 US$ scarcity bond notes
‘Bollars’ ≠ dollars
Problems
Can’t print currency
Coin shortage
Affects SA
Ecuador- mints centavos
Can’t make fiscal changes

18. Create Economic Union: Eurozone
19 EU members
Objectives
Economic stability
Ease of exchange
Integration to balance U.S.
Issues
Lack political coordination
Global recessions
Eurozone crisis
Mix of strong and weak economies
Germany v. Greece
Same problems as fixed rate of exchange