Professional Documents
Culture Documents
Chapter Objectives
Discuss the role of the international
monetary system in promoting international trade and investment Explain the evolution and functioning of the gold standard Summarize the role of the World Bank Group and the International Monetary Fund in the post-World War II international monetary system established at Bretton Woods
of payments accounting system Differentiate among the various definitions of a balance of payments surplus and deficit
Balance of Payments
The Balance of Payments (BOP) Accounting System records international transactions and supplies vital information about the health of a national economy and likely changes in its fiscal and monetary policies.
important currency from 1821 to 1918. Most firms would accept either gold or British pounds.
gold at currencies par values Gold standard readopted in 1920s Dropped during Great Depression British pound allowed to float in 1931
Float: value determined by supply and demand
Hampshire, in 1944 Goal: to create a postwar economic environment to promote worldwide peace and prosperity Renewed gold standard on modified basis (dollar-based) Created International Bank for Reconstruction and Development and International Monetary Fund
European economies Accomplished in mid-1950s Goal 2: to build economies of the worlds developing countries
cooperation To facilitate the expansion and balanced growth of international trade To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation To assist in the establishment of a multilateral system of payments
general resources of the IMF temporarily available to them and to correct maladjustments in their balances of payments To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members
rules and regulations 185 member countries as of 2008 Membership requires payment of a quota
gold U.S. $ keystone of system Fixed exchange rate system Adjustable peg Functioned well in times of economic prosperity
bank U.S. $ became only source of liquidity necessary to expand international trade People questioned the ability of U.S. to meet obligations (Triffin Paradox) IMF created special drawing rights (SDRs) paper gold Bretton Woods system ended August 15, 1971
currencies Group of Ten agreed to restore fixed exchange rate system with restructured rates of exchange
Bank
Bank of Canada European Central Bank Bank of Japan Bank of England
United States
transactions between residents of one country and residents of all other countries during specified time period
time period
Records only economic transactions
Capital Account
Portfolio Investment
Portfolio (long-term)
SDRs
Current Account + Capital Account + Official Reserves Account = 0 VERY GOOD! Realistic Current Account + Capital Account + Official Reserves Account + Errors and Omissions = 0