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The International Monetary System

The International Monetary System. By Jeffrey Wong. What was the gold-exchange standard in 1944 to 1973 and why is it important? How globalization and world politics effected our economy?. “Timeline”. 1945

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The International Monetary System

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  1. The International Monetary System By Jeffrey Wong

  2. What was the gold-exchange standard in 1944 to 1973 and why is it important? • How globalization and world politics effected our economy?

  3. “Timeline” 1945 The International Bank for Reconstruction and Development was established. Also know as the World Bank  1960 Speculative Capital Flows and Crises July 1944 The representatives of 44 countries met at Bretton Woods, New Hampshire. Agreed to renew the gold-exchange standard. Bretton Woods system was born. International Monetary Fund (IMF) was form Early 1970’s Economic crises were massive, The Bretton Woods structure of fixed exchange rates was brought down US Dollar was pegged to gold at$35 an ounce

  4. “Timeline” High inflation and some Stagflation worldwide Bretton Woods System ended August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem gold at $35 per ounce From $3 to $12 per barrel 1973-1975 First Oil Shock Worldwide inflation and the transition to Floating rates Second Oil Shock 1979 -1980 From $13 to $32 per barrel Inflation abroad as foreign central banks purchase the reserve currency to maintain their exchange rates and expand their money supplies in the process US speeds up it monetary growth under the Floating exchange rate system

  5. Purchasing Power Parity Model 1 E 1 Domestic-currency Return on foreign- Currency deposits 2 2 E Foreign Exchange market Domestic interest rate, R 0 1 2 R R L(R,Y1) Money demand curves s L(R,Y2) M P US Real Money supply 1 2 Output rises US money market Real domestic Money holdings

  6. Has the world Income Gap Narrowed over Time? • Growth doesn’t happen Y=E(P*Q) • world over production • real estate e-financials speculation • corrupt banks • government waste • profit movement overseas

  7. The Policy Trilemma for Open Economies Exchange rate stability The vertices of the triangle show three goals that policymakers in open economics would like to achieve Unfortunately, at most two can coexist Capital controls Currency board Freedom of Capital movement Monetary Policy autonomy Floating exchange rate

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