1. International finance 120181-1165 The international monetary system at present

2. International finance 120181-1165 Lecture outline  Flexible ER system after 1973  The development of the international financial market  The development of euromarkets

3. International finance 120181-1165 The IMS after 1973  The basis of the present system  Advantages and disatvantages of flexible ER  Speculation

4. International finance 120181-1165 The first oil shock  1973-1975  Increase of the oil price  supply shock  Wages and prices interdependence

5. International finance 120181-1165 First oil shock  Stagflation  Economic policy- international shifting of expenses  Money supply increase in industrialized countries  Current account- surplus countries OPEC

6. International finance 120181-1165 Changes on the financial markets  Depreciation of USD - 1976-1979  Political imbalance in international economic relations  1979- US monetary policy shifts

7. International finance 120181-1165 The second oil shock  1979-1980  Inflation increase in importing countries  Contractionary monetary policy in industrialized countries  Economic recession

8. International finance 120181-1165 Recesion in the 80-ties  Inflation decrease in industrialized countries  Large ER destabilization  Frequent CB interventions

9. International finance 120181-1165 Recesion in the 80-ties  Fiscal expansion in the US  The multiplier effect  Constant appreciation of USD  US BP deterioration

10. International finance 120181-1165 Recesion in the 80-ties  Protectionism  „Benign neglect”  interventionism  Coordination of exchange rate policy - 1985

11. International finance 120181-1165 Recesion in 80-ties  Inflationary pressure at the end of the 80- ties:  UE  USA  Japan  The ERM problem

12. International finance 120181-1165 The 90-ties  A series of currency crises  Counteracting ER crises  A new element of the IMS- the euro area

13. International finance 120181-1165 The IMS in ‘90/2000  Global imbalance  Export supporting strategy in China and Japan  Changes of the global reserves structure

14. International finance 120181-1165 The IMS in ‘90/2000  Increase of international i% interdependency  Increase of the international savings flow  New ER systems

15. International finance 120181-1165 The IMS till 2005- an assessment  International money supply  Intenational liquidity  Global equilibrium  Framework for the national policy  ER stabilisation

16. International finance 120181-1165 Ocena działania MSW do 2005 r.  Monetary policy  IMS symmetry  Adjustment mechanism  Coordination

17. International finance 120181-1165 Monetary policy  CB autonomy  Reconciling the internal and external equilibrium  CB interventions

18. International finance 120181-1165 IMS symmetry  Assymetric roles of currencies  The global reserve structure  Symmetry vs. stabilisation

19. International finance 120181-1165 Adjustment mechanisms  Structural changes in the global economy  The role of capital flow liberalisation  Empirical verification

20. International finance 120181-1165 International cooperation stabilisation  Coordination  Destabilising speculation  The impact on international trade and investments

21. International finance 120181-1165 The development of the international financial markets  Increasing liquidity  The role of derivatives  Growing role of capital markets

22. International finance 120181-1165 Increased liquidity  Capital flow liberalisation  Technological progress  New instruments and products  New risk managament techniques

23. International finance 120181-1165 Increased role of derivatives  New risk hedging techniques  Basic and structurized intrument  Growing role of speculation

24. International finance 120181-1165 Growing role of capital markets  Malejąca rola banków w pośrednictwie finansowym  The bond market  The stock market

25. International finance 120181-1165 Daily turnover on the FX market Source: BIS

26. International finance 120181-1165 Daily turnover on the derivatives market Source: BIS

27. International finance 120181-1165 The development of euromarkets  The eurocurrency market  The eurobonds market  The eurostock market

28. International finance 120181-1165 The eurocurrency market  Eurocurrency- a deposit or a loan allocated or gained in a specific currency beyond the territory of functioning of this currency  Main influence on the establishment of the market- eurodollars in the 50-ties  Europound market, Eurofranc market, Euroeuro market  Example:  A deposit in USD in Tokyo

29. International finance 120181-1165 Reasons for creation  Supply side  BP deficit in the USA  i% spread between Europe and the US  Occassionaly factors

30. International finance 120181-1165 Reasons for creation  Demand side:  New way of using USD  EU- integration processes

31. International finance 120181-1165 How does it work?  A German bank allocates a deposit at a US bank  it can borrow the money to a French bank  The French bank may borrow this money to a Japanese bank  At the eurocurrency market the monetary multiplier does not work !!!

32. International finance 120181-1165 How does it work?  The interbank market and beyond  The borrowed moneyis not under the jurisdictionof the CB  The need of sterilization

33. International finance 120181-1165 The advantages  Simple way of settling transactions  Large liquidity  An advantagous i% level

34. International finance 120181-1165 The eurobonds market  A bond issued in the national currency which is traded outside the territory of the national monetary jurisdiction  The creation of the system- the 60-ties

35. International finance 120181-1165 The eurobonds market  Reasons for creation  Income equalisation tax  Spread of rates of returns between European and US bonds  12-15% of global bond issuance

36. International finance 120181-1165 How does it work?  Consortium  Underwriters  Selling group

37. International finance 120181-1165 Eurostocks  Securities which are issued by company on foreign markets denominated in another currency than the national currency of the issuer  Its creation-80-ties

38. International finance 120181-1165 Summing up  Floating ER after 1973  The development of the financial markets  The development of the euromarkets  Global imbalances

39. International finance 120181-1165 References  P. Krugman, M.Obstfeld, International economics: theory and policy, Pearson, Addison Wesley, Boston 2009  Triennial Central Bank Survey, Foreign exchange and derivatives market activity in April 2010, Monetary and Economic Department, Bank of International Settlements, 2010.  P. Bożyk, J. Misala, M. Puławski, Międzynardowe stosunki ekonomiczne, PWE, 2002.  International banking and financial market developments, Monetary and Economic Department, Bank of International Settlements, 2000  Offshore markets for the domestic currency: monetary and financial stability issues, Workin Papers, Monetary and Economic Department, Bank of International Settlements, 2010