1. European Community

2. Corruption Perception Index u u Transparency International u u Gottingen University u u Berlin, Germany u u http://www.transparency.org

3. Corruption Perception Index

4. 2014 Corruption Perception Index

7. Shapiro: Chapter 3 The International Monetary System

8. Alternative Exchange Rate Systems u u Free (“Clean”) Float u u Managed (“Dirty”) Float u u Target-Zone u u Fixed Rate u u Hybrid

9. Free (“Clean”) Float System u u Supply & demand for currency u u Price level changes (inflation) u u Interest rate differentials u u Economic growth u u Exchange rates fluctuate randomly u u Adjust quickly to new information

10. Managed (“Dirty”) Float System u u Central bank intervention u u Reduce economic uncertainty u u Impact on domestic economy u u Appreciation (reduces exports) u u Depreciation (higher inflation)

11. Managed (“Dirty”) Float System u u Categories: – – 1. smoothing daily fluctuations – – 2. “leaning against the wind” – – 3. unofficial pegging

12. Fluctuating Value of the Yen [¥ per $,1954 - 2015]

13. “Japan spends 4 trillion yen on currency interventions in September” -MSNBC, 9/30/03 u u “Japan spent more than 4 trillion yen ($36.2 billion) over the last month intervening in currency markets, adding to a record figure it has spent this year in an aggressive yen- weakening campaign that has been criticized by its trading partners.”

14. “Japan spends 4 trillion yen on currency interventions in September” -MSNBC, 9/30/03 u u “That brought the total for the year to 13.48 trillion yen ($122.01 billion). The cumulative figure has already surpassed the previous full- year record of 7.64 trillion yen in 1999.”

15. “Japan spends 4 trillion yen on currency interventions in September” -MSNBC, 9/30/03 u u “Japanese officials often threaten to step into the market to prevent ‘excessive’ movements by the Japanese currency, whose fluctuations have a direct impact on profits by exporters.”

16. Target-Zone Arrangement   Adjust national economic policies   Maintain exchange rates in a “band” around official rates   European Monetary System (EMS)

17. Target-Zone Arrangement [European Currency Unit (ECU)] u u electronic unit of account – 1979-1999 u u composite currency u u twelve European countries u u exchange rate mechanism (ERM) u u originally a ±2.25% range

18. Target Zone Arrangement [European Monetary System] Central Rate

19. Target Zone Arrangement [European Monetary System] +2.25% -2.25%

20. Target Zone Arrangement [European Monetary System] +2.25% -2.25%

21. Target Zone Arrangement [European Monetary System] +2.25% -2.25% ? ?

22. Target Zone Arrangement [European Monetary System] +2.25% -2.25% Buy Sell

23. Target-Zone Arrangement [European Currency Unit (ECU)] u electronic unit of account – 1979-1999 u composite currency u twelve European countries u exchange rate mechanism (ERM) u originally a ±2.25% range u adjusted to a ±15% range

24. Target Zone Arrangement [European Monetary System] +15% -15% +2.25% -2.25%

25. European Monetary Union u u Maastricht Treaty (7 Feb. 1992) u u Single central bank (ECB) u u Single European currency (“Euro”) u u Qualification standards – – inflation – – currency stability – – national debt and deficit

26. European Monetary Union [Convergence Criteria] u u Inflation: no more than 1.5% above avg. of three members with lowest rate u u L-T interest rate: no more than 2% above avg. of three members with lowest rate u u Fiscal deficit: no more than 3% of GDP u u Govt. debt: no more than 60% of GDP

27. European Monetary Union [Advantages] u u Lower currency conversion costs u u Eliminate risk of currency fluctuations u u Encourage trade and investment u u Efficient allocation of resources u u Coordinate monetary policy u u Similar inflation rate

28. Fixed-Rate System (Bretton Woods) u u Target exchange rates u u Central bank buys or sells currency to maintain rate u u Coordinated monetary policy u u Same inflation rate for each country u u Sacrifices control of domestic economic policy

29. The Gold Standard u u Why? Distrust of fiat (paper) money and governments u u Automatic adjustment mechanism u u “price-specie-flow” mechanism

31. Reasons for Currency Crises u u Global trade links u u Integrated financial systems u u Debt policy – excessive short-term debt

32. Avoiding Financial Crises u u Currency controls u u Freely floating currency u u Fixed exchange rates u u Better information

33. Economics U$A Video “Exchange Rates” [# 1183]