Currency System in International Relations

1. Good Morning

2. Chapter:
Global Finance and
Business

3. Currency System
Gold Currency
Monetary Currency
Convertible Currency
Unconvertible Currency
Hard Currency
International Currency Exchange Rate
Gold Standard System.
Bretton Wood System/Fixed Exchanged Rate
Free Floating System
Managed Floating System
Hyperinflation

4. Currency System
Nearly every state prints its own money. The
ability to print one’s own currency is one of the
hallmarks of state sovereignty. Yet, it is a
globalized system of trade and finance, business
and individuals often need other states’
currencies to do business.

6. Gold Currency
 No world currency
 Sovereign states
 Europe
 World Currency
 Political Instability-Future Value

8. Bretton Woods Agreement-1944
• New Global Monetary System Set up
• Replaced Gold with Dollar
• It Set up IMF and World Bank to Monitor New System
• States had to maintain fix exchange rate
• The system collapsed after 30 years b/c Dollar not = currencies, Dollar = Gold

9. Monetary Currency
 Gold Standard System Vs International Monetary System
 Irrespective of gold and silver
 Makes international economies more efficient
 Today’s Currency System
This Currency is of two types, summed up in
the next slide

10. Hard Currency
“In contrast with nonconvertible currency, hard currency is money that
can be readily converted to leading world currencies” (Joshua.p.312)
 Examples of China and Two Version of Currency in Cuba
 States maintain reserves of hard currency
 These reserves are the equivalent of the stockpiles of gold in
centuries past.
 National currencies are now backed by hard currencies reserves, not
gold.

11. Soft Currency
Soft currencies are usually from countries that
are not too stable (politically and economically) nor
come in the category of "superpowers".
Investments and trade in such currencies is a high
risk. But investors willing to earn more over short-
term can definitely go for such currencies, at their
own risk.

12. Two Types of Hard and
Soft Currencies
Lets-Visit Next Slide

13. Convertible Currency
“The guarantee that the holder of
a particular currency can
exchange it for another currency”.
(Joshua.p.311)

14. Benefits of Convertible Currency
 Encouragement to exports-FER increase
 Encouragement to import substitution-expensive
 Incentive to send remittances from abroad-Hawala
 Integration of World Economy

15. Non-Convertible Currency
The holder of such money has no guarantee of being able to trade it
for another currency. Such states cut off from the world capitalist
economy.
 This can be sold, in black markets
 Or dealing with governments issuing currency, but the price will be
low
 Holding of unconvertible currency means loss of money

16. International Currency Exchange
Today, national currencies are valued
against each other, not against gold
or silver. Each state for a different
state’s currency according to
exchange rate.

17. Exchange Rate
“The rate at which one state’s currency
can be exchange for the currency of
another state, since 1973, the international
monetary system has depended mainly on
floating rather than fixed exchange rates”.
(Joshua.p.310)

18. Exchange Rate
There area four exchange methods of exchange rate have been
used to conduct international trade.
 Gold Standard System.
 Bretton Wood System
 Free Floating System
 Managed Floating System

19. Hyperinflation
“An extremely rapid, uncontrolled rise in
prices, such as occurred in Germany in the
1920s and some third world countries
more recently”. (Joshua.p.311)-50%-13000