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international monetary system
Institutional arrangements countries adopt to govern exchange rates.
floating exchange rate
A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand.
pegged exchange rate
Currency value is fixed relative to a reference currency.
managed-float system
System under which some currencies are allowed to
float freely, but the majority are either managed by government
intervention or pegged to another currency.
dirty-float system
A system under which a country’s currency is nominally allowed to
float freely against other currencies but in which the government
will intervene, buying and selling currency, if it
believes that the currency has deviated too far from its
fair value.
fixed exchange rate
A system under which the exchange rate for converting
one currency into another is fixed.
European Monetary System (EMS)
EU system designed to create a zone of monetary stability in
Europe, control inflation, and coordinate exchange rate policies of
EU countries.
dollarization
The process of aligning a country’s currency with the
U.S. dollar.
when is dollarization most commonly used?
When a country is suffering from severe macroeconomic problems, like high inflation, making their currency worthless.
gold standard
The practice of pegging currencies to gold and guaranteeing convertibility.
gold par value
The amount of currency needed to purchase one
ounce of gold.
balance-of-trade equilibrium
Reached when the income a nation’s residents earn from
exports equals money paid for imports.
up until when was the Gold standard used
It was used from the 1870s to the start of WW1 in 1914
Abandoned because governments started financing with printing paper.
When did countries meet up at Bretton Woods, New Hampshire and how many did ?
They met in 1944, at the height of WW2 and 44 countries met there.
What two Institutions were established at Bretton Woods?
International Monetary Fund (IMF)
World Bank
What was the task of the IMF
To maintain order in the international Monetary system
What was the task of the World Bank
To promote general economic development.
What was the world banks initial mission ?
The bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans.
The bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans.
Who over shadowed the World Bank in this mission
The United States did with their Marshall Plan which directly lent money to European nations to help them rebuild.
What is the International Development Association (IDA)
This is an arm of the World Bank created in 1960.
Resources from IDA are raised through subscriptions from wealthy members like the United States.
IDA loans only go to the poorest countries, in forms of grants and interest free loans.
The System of Fixed Exchange rates established at Bretton Woods worked Well until ..
What have we used since the fail?
1973, since then we’ve used a managed-float system.
Why did the Bretton Woods fixed exchange system fail ?
Because it was to reliant on the US Dollar. Any pressure on the dollar to devalue could wreak havoc with the system.
Why did a lot of countries not want to revalue against the US dollar in order to fix the US dollar devaluation problem?
Because it would make their products more expensive relative to U.S products.
What did Richard Nixon do in order to force countries to revalue against the US Dollar.
He placed at 10 percent tax on imports which remained until they revalued
What is the managed float system
an exchange rate regime in which the exchange rate is neither entirely free (or floating) nor fixed. Rather, the value of the currency is kept in a range against another currency by central bank intervention.
What did the Jamaica Agreement do?
Revised the IMF’s Articles of agreement to reflect the new reality of floating exchange rates.
what are the 3 main reason as to why people support floating exchange rates ?
Monetary Policy Autonomy
Automatic trade balance adjustments
Economic recovery following a severe economic crisis.
refers to a country's central bank's capacity to independently formulate and implement monetary policies—such as setting interest rates and regulating the money supply—without undue external influence.
What is this called ?
Monetary Policy Autonomy
refers to the economic mechanisms through which a country corrects imbalances between its exports and imports. A __________ occurs when the value of a country's imports does not equal the value of its exports, leading to a trade deficit (imports exceeding exports) or a trade surplus (exports exceeding imports).
Trade Balance (adjustments)
What are the 4 reason why people support Fixed exchange rates because
Monetary discipline
Speculation
uncertainty
Lack of connection between the trade balance and exchange rates.
refers to the practice of controlling the money supply within an economy to maintain economic stability. This involves strategies such as aligning the money supply with production levels or foreign currency reserves, thereby preventing excessive inflation or deflation.
entail pegging the domestic currency to a stable foreign currency, ensuring that the money supply corresponds to the reserves held in that foreign currency.
Monetary discipline
Note 
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