Econ Chapter 11(Gold - Crypto)

Fractional reserve banking

System where banks have to only keep some of your money and the rest can be spread out to others

Crawl/ soft peg

crawl is where exchange rate can fluctuates gradually and is adjusted

Soft is when exchange rate can only move within a certain range

Gold parity

How much a country and its economy is worth in within their gold

Currency board

Where domestic authorities have to fix their exchange rate/ currency to a foreign countries

Dollarization

When a country replaces its domestic currency with a foreign currency

Current account vs capital account

Current account - short term account that tracks goods and services

Capital account - long term account that tracks financial assets like investments and loans

Store of value

Currency that holds value overtime

Medium of exchange

Method where a currency is used for transactions instead of self consumption

Unit of account

Monetary unit of measurement for the market value of goods and services

Rule 1 of Gold standard(convertibility)

Central banks convert currencies to gold

Rule 2 of Gold Standard(Free international Good movement)

No restrictions on the import or export of gold as a commodity or payment

Rule 3 of Gold Standard(Interest rate policy)

Changes in interest rate to deal with changes in supply- if supply of gold is decreasing then raise interest rates to entice gold back

Currency wars

Competitive devaluation of currencies to make exports cheaper

World bank purpose

Supply poor countries with money, at high interest rates, allowing world bank to lend countries more money

What loans do IDA make to very poor countries?

Interest free long term loans

Grants for very poor countries(those with less than $1205 per person)

IBRD

Bank that lends to any country in need or available

IDA

Lends to very poor countries

What is GATT?

General Agreement on Trade and Tariffs. Multilateral agreement that regulates trade among member countries

WTO

Only international organization that deals with rules of trade between nations(1995)

Fiat currency

Currencies that are backed by the government and people’s trust in it.

Nixon Shock

U.S. was spending a lot of Vietnam War causing inflation and spending deficits. Countries started to worry and began converting their currency for gold. Nixon decided to no longer let US convert paper money for gold.

Baring Crisis(Cause)

In 1880-90 Argentina began to collapse heavily due to political instability, lack of exports and lack of investors. Argentina defaulted- could pay loans back. Baring Brothers lended Argentina alot of money but now was on verge of bankruptcy

Four Key points of Bretton Woods(agreed upon)

1. Formation of the IMF

2. Establishment of the IBRD, now The World Bank

3. Fixed exchange rate system

4. International cooperation of investments