1. MONETARY ECONOMICS
EXCHANGE RATE REGIMES

2. Content Short History of the International Monetary System
Fixed vs Flexible Exchange Rates
Optimal Currency Area
Issues:
- Trilemma (Forssbaeck and Oxelheim, 2006)
- Gold Dinar as a common currency of OIC
countries?
- Can Interest Rate policy be used to defend falling
exchange rate?

3. History of International Monetary System
1880s – WWI: Gold Standard
- Every country at fixed e-rate with gold.
WWI – 1940s: Interwar Gold-Exchange and Dirty Float
- WW I: countries printed money
- later, returning to old parity was too hard (too much
contraction needed).
- UK did return to gold.
- Others pegged to a mixture of gold and foreign exchange.
- Overall, failed attempts to restore credibility of the gold
standard.
- 1930s & Great Depression: most countries abandoned their
pegs.

4. History of International Monetary System
: Bretton Woods
- dollar pegs to gold & other countries peg to the dollar
- US plays central role: monetary policy affects all other
countries
- 1960s: dollar depreciation  countries request gold  US
lost gold reserves  1971 Nixon closed the gold window.
1970s: Floating Exchange rates, oil shocks and stagflation
1979: ERM in Europe and eventually EURO in 1999
1980s --:
Developed: free or managed floats
Developing: fixed-exchange rates for stability and
credibility

5. Fixed Exchange Rate Regime

6. Fixed Exchange Rate Regime

7. Fixed Exchange Rate Regime

8. Fixed versus Flexible

9. Impossible Trilemma

10. Common Currency Area

11. THE EURO….

12. Maastricht Criteria 1991

13. EU Countries

14. DISCUSSION OF ISSUES Trilemma (Forssbaeck and Oxelheim, 2006)
Gold Dinar as a common currency in OIC Countries?
Lee, G. H. Y. (2011), Gold Dinar for the Islamic
Countries? Economic Modeling, 28,
Can Interest Rate be used to defend falling exchange rate?
Dekle, R., Hsiao, C. and S. Wang, (2002), “High Interest
Rates and Exchange Rate Stabilization in Korea,
Malaysia, and Thailand: An Empirical Investigation of the
Traditional and Revisionist Views,” Review of nternational
Economics, 10(1),