8. 10-8
Алтан стандартын тогтвортой байдал
Алтан стандартын гол х ч нь б х улс орнууд нэгэнү ү
зэрэг худалдааны балансын тэнцвэрийг олдог т нийүү
х чирхэг механизмтай байсан явдал юмү – тухайн
улсын иргэдийн экспортоос олсон орлого импортод
т лс н зардалтай тэнцө ө үү
Олон х м с н д р дэлхий эргээд алтанү үү ө өө ө
стандартад шилжих хэрэгтэй гэдэгт итгэдэг
9. 10-9
1918 - 1939
Алтан стандарт 1870-аас Дэлхийн 1-р дайн эхлэх
х ртэл маш сайн ажилласанү
Дайны дараа улс орнууд экспортоо дэмжихийг
оролдохдоо валютынхаа ханшийг тогтмол сулруулж
эхэлсэн
Системд итгэх итгэл буурсан ба ард т мэн валютынхааү
оронд алт шаардаж эхэлснээр улсын алтны н ц дөө ө
дарамт учруулсан ба алтны х рв х чадварыг т рө ө ү
зогсооход х ргэсэнү
Алтан стандарт 1939 онд т гсг л болсонө ө
10. 10-10
Бреттон В дсийн системүү
Шинэ олон улсын валютын систем New Hampshire,
Bretton Woods-д 1944 онд бий болсон
Зорилго нь дайны дараах эдийн засгийн с лтийгө ө
дэмжих бат б х эдийн засгийн дэг журмыг бий болгохө
Бреттон В дсийн хэлэлцээр хоёр олон улсынүү
байгууллагыг бий болгосон
1. Олон улсын валютын сан (IMF) олон улсын
валютын систем дэх хэв журмыг сахиулах
2. Дэлхийн банк эдийн засгийн х гжлийг дэмжихө
11. 10-11
Бреттон В дсийн системүү
Бреттон В дсийн хэлэлцээрээрүү
З вх н ам.доллар л алт руу х рв х валют болсон баө ө ө ө
бусад валютын ханш доллартай харьцангуйгаар
тогтоогддог болсон
Ханшийн бууралтыг рс лд х зорилгоорө ө ө
ашиглахг йү
Улс орнууд ОУВС з вш р г й ед валютынө өө өө ү ү
ханшаа 10%-с ил бууруулж болохг йүү ү
12. 10-12
ОУВС-ийн рэгүү
ОУВС дараах з йлсийг хослуулах замаар дайныү
хооронд гарсан эмх замбарааг й байдлыгү
давтагдахаас зайлсхийх рэг х лээсэнүү ү
1. Сахилга бат
Тогтмол валютын ханш нь рс лд н валютынө ө ө
ханшаа бууруулахыг зогсоож дэлхийн худалдааны
орчинд тогтвортой байдлыг бий болгосон
Тогтмол валютын ханшийн дэглэм улс орнуудын
м нг ний сахилга батыг тогтоожө ө , инфляцийг
бууруулсан
14. 10-14
Дэлхийн банкны рэгүү
Дэлхийн банк хоёр замаар зээл олгодог
IBRD-ийн схемийн дагуу олон улсын х р нгийн захө ө
зээл дээр бонд арилжаалах замаар м нг босгожө ө
болох ба зээлдэгч банкны санал болгож буй зах
зээлийн х г т лд гүү ө ө – банкны санх жилтийн рт гүү ө ө
дээр зардлын маржиныг нэмнэ.
Олон улсын х гжлийн агентлагийн схемийн дагууө
зээл з вх н ядуу орнуудад олгогдоноө ө
Дэлхийн Банкны албан ёсны нэр нь Олон улсын
сэргээн босголт х гжлийн банкө (IBRD) юм.
15. 10-15
Тогтмол системийн уналт
Асуулт: Бреттон В дсийн системийн унасан шалтгаанүү
юу вэ?
Хариулт:
Бреттон В дсийн системийн уналт нь АНУ-ын макроүү
эдийн засгийн бодлогын шийдвэрээс улбаатай байж
болох юм (1965-1968)
Энэ хугацаанд АНУ халамжийн х т лб рийнө ө ө
санх жилтийг их хэмжээгээр нэмэгд лсэн баүү үү
Вьетнамын дайны ед м нг ний нийл лэлтээү ө ө үү
нэмэгд лснээр их хэмжээний инфляцийн шалтгаанүү
болсон
Ихэнх бусад валюттай харьцах долларын ханшийг
унагах спекуляци нь бусад улс орнуудын доллартай
харьцах валютын нэ цэнэ с х д х ргэсэнү ө ө ө ү
16. 10-16
Тогтмол системийн уналт
Бреттон В дсийн систем эдийн засгийн сайнүү
удирдлагатай АНУ-д суурилдаг байсан.
Иймээс, АНУ м нг хэвлэж эхлэхэд, нд р худалдааныө ө ө ө
алдагдал, нд р инфляцийг бий болгосноор системө ө
задран унах цэг болсон
Бреттон В дсийн системүү 1973 онд задран унасан
17. 10-17
Х в гч валютын ханшийн дэглэмө ө
Асуулт: Бреттон В дсийн валютын ханшийн системүү
задран унасны дараа юу болсон бэ?
Хариулт:
Бреттон В дсийн хэлэлцээрийн уналтын дараагаарүү
Ямайкад 1976 онд х в гч валютын ханшийн дэглэмө ө
бий болсон
Олон улсын валютын системийн журам нь н д р чө өө ө
уулзалтын еэр тохиролцсон тэр хэвээр байнаү
18. 10-18
Ямайкийн гэрээ
Ямайкийн уулзалтаар ОУВС-ийн гэрээний з йл дү үү
х в гч валютын ханшийн шинэ бодит байдлыгө ө
тусгахын тулд шинэчлэгдсэн байна
Ямайкийн хэлэлцээрийн дагуу
Х в гч ханшийг х лээн з вш рсн зарласанө ө ү ө өө өө
Алт н ц х р нг болж орхигдсонөө ө ө ө
ОУВС-ийн жилийн нийт квот – ОУВС-д гиш нүү
орнуудын оруулсан хувь нэмэрийн д нү - $41 тэрбум
доллар болж сс нө ө ( н д р энэ тооө өө ө $300 тэрбум)
19. 10-19
Валютын ханш 1973 оноос хойш
1973 оноос валютын ханш дараах шалтгааны улмаас
ил хэлбэлзэлтэй б г д таамаглахад хэц болсонүү ө өө үү
1971 оны газрын тосны хямрал
1977-с 1978 оны хоорондох АНУ-ын срэнг йү ү
инфляцийн дараа долларт итгэх итгэл алдарсан
1979 оны газрын тосны хямрал
1980-1985 оны хоорондох долларын с лтө ө
1992 оны Европын валютын системийн хэсэгчилсэн
уналт
1997 оны Азийн валютын хямрал
2000 оны дунд еэс с л е х ртэлх долларын уналтү үү ү ү
20. 10-20
Тогтмол ба Уян валютын ханш
Асуулт: Тогтмол валютын ханшийн систем болон
х в гч ханшийн системийн аль нь ил сайн бэө ө үү ?
Хариулт:
С лийн жил д дэх х в гч ханшийн тааг й байдал ньүү үү ө ө ү
тогтмол ханшийн системийн давуу талын талаарх
шинэ мэтгэлцээнд х ргэсэнү
21. 10-21
Х в гч ханшийн тохиолдолө ө
Х в гч валютын ханшийн систем хоёр сонирхолтойө ө
боломж олгодог
1. М нг ний бодлогын хараат бус байдалө ө
2. Автомат худалдааны балансын тохируулга
22. 10-22
Х в гч ханшийн тохиолдолө ө
1. М нг ний бодлогын хараат бус байдалө ө
Валютын ханшийн тэнцвэрийг хадгалах ргээсээүү
татгалзах нь засгийн газрын м нг ний хяналтыгө ө
сэргээдэг
Тогтмол системд улс орны м нг нийө ө
нийл лэлтийг тэлэх чадвар нь валютынүү
ханшийн тэнцвэрийг хадгалах хэрэгцээгээр
хязгаарлагддаг
23. 10-23
Х в гч ханшийн тохиолдолө ө
2. Худалдааны балансын тохируулга
Т лб рийн балансын тохируулгын механизм х в гчө ө ө ө
ханшийн дэглэмийн дагуу ил саадг й ажилладагүү ү
Бреттон В дсийн системийн дагууүү (тогтмол
систем), улс орны худалдааны балансын тогтмол
алдагдлыг засахын тулд з вх н дотоод бодлогоө ө
бус ОУВС-ийн з вш р л хэрэгтэйө өө ө
34. 10-34
Бретон В дсийн дараах санх гийн хямралүү үү
2. Банкны хямрал – банкны системд итгэл алдарснаар
хувь х м с болон компаниуд хадгаламжаа татан авахү үү
н хц лтэй холбоотойө ө
3. Гадаад рийн хямралө – улс орны засгийн газар болон
хувийн салбарын аль аль нь гадаад рийн ргээө үү
биел лж чадахг й байх н хц лдүү ү ө ө
Чухал ач холбогдолтой хоёр хямрал байдаг нь
1. 1995 оны Мексикийн валютын хямрал
2. 1997 оны Азийн валютын хямрал
35. 10-35
1995 оны Мексикийн валютын хямрал
1995 оны Мексикийн валютын хямрал нь Мексикийн
их хэмжээний р болон уясан ханш нь нийнө ү
тохируулга хийх боломж олгохг й байсны р д н юмү ү ү
Мексикийг рийн хямралаас гаргахын тулд ОУВСө
$50 тэрбумын тусламжийн багцыг хэрэгж лсэнүү
1997 оны ед Мексик сэргэж эхэлсэн байнаү
36. 10-36
Азийн хямрал
Асуулт: 1997 оны Азийн санх гийн хямралынүү
шалтгаан юу байсан бэ?
Хариулт:
Энэ хямралын шалтгаан нь б с нутагт урьд мнү ө ө
байгааг й с лт ажиглагдаж байсан мн х 10 жилээсү ө ө ө ө
улбаатай юм
1. Х р нг оруулалтын х сө ө ө өө
Экспортод чиглэсэн с лт р хангахө ө өө
Их хэмжээний х р г оруулалт бодитой бус байсанө ө ө
ирээд йн эрэлтийн н хцлийн талаарх т с л лдү ө ө өө ө
ихэвчлэн тулгуурладаг
37. 10-37
Азийн хямрал
2. Ил дэл х чин чадалүү ү
Ирээд йн эрэлтийн н хцлийн талаар бодит бус т с л лдү ө ө өө ө
суурилан хийгдсэн х р нг оруулалт нь их хэмжээний ил дэлө ө ө үү
х чин чадлыг бий болгосонү
3. рийн б тэлг йтэлӨ ү ү
Х р нг оруулалтууд нь ихэвчлэн доллар суурьтай р болсонө ө ө ө
Инфляци болон импортын с лт валютад дарамт учруулсны рө ө ү
д нд ханшийн бууралт нь доллараар илэрхийлэгдсэн рийнү ө
дефолтод х ргэсэнү
4. Импортын с лтө ө
1990-ээд оны дунд ед б с нутгийн х рээнд импорт сс н ньү ү ү ө ө
т лб рийн балансын алдагдлын шалтгаан болсонө ө
Т лб рийн балансын алдагдал нь улс орнууд ам.долларын эсрэгө ө
рийн валютын ханшийг хадгалахад хэц болгосонөө үү
38. 10-38
Азийн хямрал
1997 оны дунд ед Тайландын хэд хэдэн голү
санх гийн байгууллагууд дефолт болох нь тодорхойүү
болсон
Гадаад валютын диллер д болон хедж сангуудүү
Тайландын батын эсрэг спекуляци хийж эхэлсэн
(богино арилжаагаар)
Ханшийг хамгаалахын тулд тэмцэж байсны дараагаар
Тайландын засгийн газар хамгаалахаа больж, бат
долларын эсрэг ч л тэй х в х р зарласанө өө ө ө өө
39. 10-39
Азийн хямрал
Тайланд ОУВС-аас тусламж авахаар болсон
Спекуляци бусад валют нь унаж байсан Азийн орнууд
болох Малайз, Индонез, Сингапурт ргэлжлэнү
н л лс нө өө ө
Эдгээр ханшийн уналт нь ил дэл х р нгүү ө ө ө
оруулалт, их хэмжээний зээл, ний ихэнх ньүү
доллараар илэрхийлэгдсэн р, т лб рийн балансө ө ө
муудсан зэргийн р д н байсанү ү
мн д Солонгос энэ б сийн уналтад орсон с лийнӨ ө ү үү
улс байсан
40. 10-40
ОУВС-ийн бодлогыг нэлэх ньү
Асуулт: ОУВС улс орнуудыг буцааж замд нь оруулахад
хэр амжилттай ажилласан бэ?
Хариулт:
2009 онд 54 оронд ОУВС-ийн х т лб р ажиллажө ө ө
байсан
ОУВС-ийн б х зээлийн багц нь хатуу макро эдийнү
засгийн бодлого, м нг ний хатуу бодлогын хослолыгө ө
хангах н хц лтэй олгогддогө ө
Олон шинжээчид эдгээр бодлогыг гурван шалтгааны
улмаас ш мжилж байнаүү
41. 10-41
ОУВС-ийн бодлогыг нэлэх ньү
1. Тохиромжг й бодлогоү
ОУВС-ийн макро эдийн засгийн бодлогод “б гдэд нэгү
хэмжээг тохируулах” арга нь олон улс орнуудад
тохирохг й байгаа тул ш мжлэгдэж байнаү үү
2. Moral Hazard
ОУВС ёс суртахууны аюулыг улам хурцатгаж байна гэж
ш мжлэгдэж байнаүү (х м с б х з йл буруутсан чү үү ү ү
аврагдах болно гэдгээ мэдэж байгаа тул санамсарг йү
алдаа гаргадаг)
42. 10-42
ОУВС-ийн бодлогыг нэлэх ньү
3. Хариуцлага дутах
ОУВС-ийн с лийн ш жмлэл нь тухайн байгууллагаүү үү
хэт х чирхэг болж байгаатай холбоотой т нтэйү үү
хариуцлага тооцох бодит механизм дутагдалтай
байгаа явдал юм
Асуулт: Хэний з в бэө ?
Хариулт:
Олон улсын эдийн засгийн талаар олон мэтгэлцээн
байдаг ч хэний з в болох нь тодорхойг й байнаө ү
43. 10-43
Менежер дэд з лэх р дагаварүү ү үү ү
Асуулт: Олон улсын валютын системийн
менежер дэд з лэх р дагавар юу вэүү ү үү ү ?
Хариулт:
Олон улсын валютын систем нь олон улсын
менежер дэд 3 замаар н л лд гүү ө өө ө
1. Валютын удирдлага
2. Бизнесийн стратеги
3. Корпораци-Засгийн газрын хамаарал
44. 10-44
Валютын удирдлага
1. Валютын удирдлага
Одоогийн валютын ханшийн систем нь х в гчө ө
удирдлагатай
Засгийн газрын зохицуулалт болон спекуляцийн
йл ажиллагаа валютын нэ цэнэд н л лд гү ү ө өө ө
Компаниуд рсдийг форвард зах зээл болонөө өө
свопсоор валютын ханшийн хэлбэлзлээс хамгаалж
чадна
45. 10-45
Бизнес стратеги
2. Бизнесийн стратеги
Валютын ханшийн х д лг н нь бизнес дийнө ө өө үү
рс лд нт н хц лд гол н л з лж болноө ө өө ө ө ө өө ү үү
Форвардын зах зээл богино хугацаанд валютын
ханшийн хэлбэлзлээс хамгаалах зарим
хамгаалалтыг санал болгодог
Компаниуд эдийн засгийн эрсдлийг минимумчлах йлү
ажиллагаандаа уян хатан стратегийг бий болгосноор
урт хугацаанд валютын ханшийн х д лг нийө ө өө
тодорхойг й байдлаас рсдийг хамгаалж чаднаү өө өө
Компаниуд йлдвэрлэлээ р р байршилд тараанү өө өө
байршуулж болно
Компаниуд аутсорс йлдвэрлэл явуулж болноү
47. 10-47
Classroom Performance System
When the foreign exchange market determines the relative
value of a currency, a ________ exchange rate system exists.
a) Fixed
b) Floating
c) Pegged
d) Market
49. 10-49
Classroom Performance System
Floating exchange rates were deemed acceptable under
a) The Bretton Woods Agreement
b) The Gold Standard
c) The Jamaica Agreement
d) The Louvre Accord
50. 10-50
Classroom Performance System
The most common exchange rate policy among IMF members
today is the
a) Free float
b) Managed float
c) Fixed peg
d) Adjustable peg
Editor's Notes
Chapter 10: The International Monetary System
You know, from our discussion in Chapter 9, what an exchange rate is and how its value is determined, but did you know that there are international agreements that also govern exchange rates? In this chapter we’re going to talk about the international monetary system and its implications for international business. First, though, let’s go over some definitions.
The international monetary system refers to the institutional arrangements that countries adopt to govern exchange rates.
You know, from our discussion in Chapter 9, what an exchange rate is and how its value is determined, but did you know that there are international agreements that also govern exchange rates? In this chapter we’re going to talk about the international monetary system and its implications for international business. First, though, let’s go over some definitions.
The international monetary system refers to the institutional arrangements that countries adopt to govern exchange rates.
When the foreign exchange rate market, or supply and demand, determine the relative values of currencies, a floating exchange rate system exists. The U.S., the EU, Japan, and Great Britain all have floating exchange rate systems.
A pegged exchange rate system exists when the value of a currency is fixed to a reference country and the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. As you might recall from the Opening Case, Latvia used this system. Latvia pegged its currency, the lat, to the euro, and then the lat/euro rate was determined based on the dollar/euro rate. When the dollar shifted, so did the value of the peso.
A dirty float exists when the value of a currency is determined by market forces, but the central bank intervenes if it depreciates too rapidly against an important reference currency. China has used this system since 2005. The yuan is allowed to float against a basket of currencies that include the dollar, the euro, and the yen, but only within very tight limits.
Countries that adopt a fixed exchange rate system fix the values of their currencies against each other. Prior to the introduction of the euro, some EU countries operated under fixed exchange rates within the context of the European Monetary System.
How do all of these systems work together? Well, to understand the current international monetary system, we have to go back to the 1930s and the time of the Gold Standard and its successor the Bretton Woods Agreement to see the evolution of today’s system.
How do all of these systems work together? Well, to understand the current international monetary system, we have to go back to the 1930s and the time of the Gold Standard and its successor the Bretton Woods Agreement to see the evolution of today’s system.
The origin of the gold standard dates back to ancient times when gold coins were the medium of exchange. When there was little international trade, international transactions were made in gold or silver, but after the Industrial Revolution, a new system was needed, and the gold standard was established.
Under the gold standard, each currency was linked to a fixed amount of gold. The dollar for example, was equal to 23.22 grains of fine gold. The exchange rate between currencies then was based on the gold par value, or the amount of a currency needed to purchase one ounce of gold. In other words, if you had dollars, and needed francs, you would convert your dollars to gold at the rate of 23.22 grains of gold per dollar, and then convert the gold to francs at the franc/gold rate.
The main attraction of the gold standard was that it had a powerful mechanism for simultaneously achieving balance of trade equilibrium for all countries. We say that a country has balance of trade equilibrium when the income a country’s residents earn from its exports is equal to the money its residents pay for imports.
What does this mean? Well, if Japan has a trade surplus with the U.S., or exports more to the U.S. than it imports, we see dollars flowing out if the U.S. to pay for the imports. After the Japanese exporters cash the dollars in for yen at the Japanese bank, the Japanese bank will trade them for gold with the U.S. The outflow of gold from the U.S. will reduce the U.S money supply and increase Japan’s money supply causing higher prices in Japan and lower prices in the U.S. So, demand for Japanese goods will drop, while demand for American products will rise, and balance of payments equilibrium will be achieved.
The gold standard worked well from the 1870s until the start of World War I when it was abandoned. By the end of the war in 1918, prices were higher everywhere because countries had printed money to finance their war expenditures. Again, recall the relationship between the money supply and inflation that we talked about in Chapter 9! .
Then, in an effort to encourage exports and domestic employment, countries started to devalue their currencies. Recall, that if a country’s currency is worth less, imports will be more expensive, and exports will be cheaper.
People began to lose confidence in the system and started to demand gold for their currency putting pressure on countries’ gold reserves and forcing them to suspend convertibility. By the start of World War II in 1939, the gold standard had been abandoned.
In 1944, a new international monetary system was established. Representatives from 44 countries met at Bretton Woods, New Hampshire with the goal of building an enduring economic order that would facilitate postwar economic growth.
As part of the agreement, two multinational institutions were established.
The first, the International Monetary Fund or IMF, was designed to maintain order in the international monetary system. The goal of the second, the World Bank, was to promote general economic development.
Under the Bretton Woods system, the only currency that was to be convertible to gold was the dollar. Other countries set their exchange rates relative to the dollar. So, the dollar was set against gold at $35 per ounce, and then each country determined its exchange rate relative to the dollar.
Devaluations were not allowed for competitive purposes, and a country couldn’t devalue its currency by more than 10 percent without IMF approval.
The IMF, using a combination of flexibility and discipline, was responsible for executing the main objectives of the Bretton Woods agreement, with the goal of avoiding the repeating the chaos that occurred during the time between the wars.
Let’s talk a bit more about the discipline imposed by the IMF. The fixed exchange rate system provides discipline in two ways. First, the need to maintain a fixed exchange rate limits competitive devaluations and brings stability to the world trade environment.
Second, because the system imposes monetary discipline on countries, inflation is limited.
So, fixed exchange rates help control inflation and force economic discipline on countries.
Why was it important to have a flexible system as well as a disciplined system? Well, representatives at the meeting recognized that a rigid policy of fixed exchange rates would be too inflexible in a more global world.
So, instead, the IMF created a fund using contributions from members that gave it the ability to lend foreign currencies to members to tide them over during short term balance of payments deficits when implementing a rapid tightening of monetary or fiscal policy would harm the domestic employment situation.
Now, let’s move on to talk about the World Bank, or as it’s officially known, the International Bank for Reconstruction and Development. The World Bank was initially designed to lend money to help rebuild Europe, but shifted its role to helping Third World nations after the Marshall Plan was implemented.
The World Bank makes loans in two ways. The first method involves raising money through bond sales in the international capital market. Borrowers pay a market rate of interest which is calculated based on the bank’s cost plus expenses.
The second method, which is overseen by the International Development Agency, raises money through subscriptions from wealthy members like the U.S. These loans only go to very poor countries which have 50 years to repay at a 1 percent per year rate of interest.
The foreign exchange system that was established at Bretton Woods worked well until the late 1960s when it began to collapse. Under President Johnson, the U.S. began to finance increases in its welfare program and the costs related to the Vietnam War by increasing the money supply. Recall that an increase in the money supply leads to price inflation. This led to a deterioration of the U.S. foreign trade position, and speculation that the dollar would have to be devalued.
However, remember that under the Bretton Woods system, devaluing the dollar meant that all other currencies would have to be revalued—a prospect that wasn’t appealing to other countries that would see the price of their products rise relative to American products!
In 1971, President Nixon announced that the dollar would no longer be convertible to gold, and that a 10 percent tariff on all imports would be implemented unless countries agreed to revalue their currencies. The dollar was eventually devalued by about 8 percent, but problems continued to persist. The U.S. continued to expand its money supply, run high trade deficits, and experience high inflation. The Bretton Woods system was only viable when the U.S. inflation rate was low, and the U.S. did not run a balance of payments deficit, and so it collapsed, and currencies began to float against each other.
After the collapse of Bretton Woods, IMF members got together in 1976 in Jamaica to formalize the new floating exchange rate system.
Under the Jamaica Agreement, floating rates were deemed acceptable, gold was abandoned as a reserve asset, and IMF quotas, or the amounts that countries contributed to the IMF, were increased.
Since 1973, exchange rates have become more volatile and less predictable for several reasons including the 1971 oil crisis, the loss of confidence in the dollar that came after the U.S. inflation rate spiked in 1977-78, the 1979 oil crisis that doubled the price of oil, the unanticipated rise in the dollar between 1980 and 1985, the partial collapse of the European Monetary System in 1992, and the 1997 Asian currency crisis that saw various Asian currencies lose between 50 and 80 percent of their value!
Because of the volatile nature of the floating exchange rate system, there’s been renewed interest in a fixed exchange system in recent years. Which is better? It’s hard to say.
A floating exchange rate system offers monetary policy autonomy and automatic trade balance adjustments. Let’s look at what each of these features means.
Supporters of floating exchange rates note that governments gain control over their monetary policy when they don’t have to maintain exchange rate parity. Why is this important? Well, suppose a government wanted to stimulate domestic demand to reduce domestic employment. Under a floating exchange rate system, the government could choose to expand the money supply to encourage people to buy more without worrying about maintaining parity.
Under a fixed exchange rate system, the government doesn’t have this ability because it has to maintain exchange rate parity.
Advocates of floating exchange rates also point out the automatic trade balance adjustments that are part of the system are important. Under the fixed exchange rate system, if a country couldn’t correct a balance of payments deficit using domestic policy, it was required to get IMF approval to devalue its currency.
Under a floating exchange rate system, the trade balance would be automatically corrected. For example, if a country is running a trade deficit, buying more than it sells, the outflow of money will eventually lead to a depreciation of its currency. This depreciation will make its goods cheaper in foreign markets, and imports more expensive, and the trade deficit should eventually correct itself.
So, why are some people calling for a return to fixed exchange rates? The answer to this question lies in arguments about monetary discipline, uncertainty, and the lack of connection between trade balances and exchange rates. Let’s talk about each one beginning with monetary discipline.
Supporters of fixed exchange rates argue that the monetary discipline required by a fixed exchange rate system ensures that governments will not expand their money supplies at inflationary rates. Advocates of fixed exchange rates also note that the speculation that occurs with floating exchange rate regimes can cause currency fluctuations. For example, the dollar fluctuated sharply in the 1980s, and critics of floating regimes argue that this was the result of speculation not comparative inflation rates or trade deficits.
Similarly, when speculation about a currency is high, the uncertainty that is part of a floating exchange rate system also becomes apparent. For companies, this uncertainty makes planning more challenging than it would be under a predictable fixed exchange rate system.
Finally, advocates of floating exchange rates argue that floating rates help adjust trade imbalances, but critics argue that this link may not really be true. Instead, they claim trade deficits reflect the balance between savings and investment in a country.
So, who’s right? Is a fixed exchange rate system better, or should we have a floating exchange rate system? So, far, economists can’t agree on an answer. We know that a Bretton Woods type of system won’t work, but a different type of fixed exchange rate system might be an option, particularly if it facilitates growth in international trade and investment.
.
You may be wondering what exchange rate system is currently in place? There are several regimes currently in practice including managed floats, free floats, pegged arrangements and adjustable pegs.
As you can see, about 14 percent of IMF members follow a free float policy, 28 percent follow a managed float, 22 percent have no legal tender of their own like the EU countries that have adopted the euro, and the remaining countries use less flexible systems like pegged arrangements or adjustable pegs.
Let’s look at the pegged exchange rates systems a little more closely. Countries under a pegged exchange rate system link the value of their currency to a major currency like the dollar. As you’ll see in the Closing Case, China linked the yuan to the dollar between 1993 and 2005. Pegged arrangements are popular among the world’s smaller nations like Belize.
Countries adopt this type of system because in theory, it imposes monetary discipline and leads to low inflation, however an IMF study showed that pegged regimes don’t actually moderate inflationary pressures.
Some countries adopt what’s known as a currency board where they commit to converting their domestic currency on demand into another currency at a fixed exchange rate. Hong Kong was successful with this type of arrangement during the Asian crisis in 1997. Hong Kong backed its currency 100 percent by the dollar, and was able to withstand several speculative attacks.
We’ve talked a bit about various crises that have shocked the international monetary system, now let’s look at them more closely, and how the IMF handles them. Recall that the IMF was originally established to help maintain the exchange rate system that was set at Bretton Woods. Today, however, many of the original reasons for its existence are no longer there.
So, the IMF, which in 2010 had 186 members, has redefined its mission, and focuses on lending money to countries that are in financial crisis. For example, the IMF lent money to several Asian countries in 1997.
What constitutes a financial crisis? Well, there are three types of crises - currency crises, banking crises, and foreign debt crises - that attract attention from the IMF. Let’s look more closely at each one.
A currency crisis occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the currency, or forces the government to expend large amounts of international currency reserves and sharply increase interest rates in an effort to maintain the prevailing exchange rate.
A banking crisis refers to a situation in which a loss of confidence in the banking system leads to a run on the banks when everyone withdraws their deposits.
A foreign debt crisis is a situation in which a country can no longer service its foreign debt obligations.
Sometimes these crises occur simultaneously like they did in the 1997 Asian crisis and the 2000-2002 Argentinean crisis. IMF data show that developing countries are far more likely to experience a currency crisis than developed countries.
Let’s look more closely at two financial crises that have occurred recently, the Mexican crisis of 1995, and the Asian crisis of 1997. We’ll begin with the Mexican crisis. The crisis in Mexico was the result of high debt and a pegged exchange rate that didn’t allow for the natural adjustment of prices.
Mexico’s pegged currency was the result of its 1982 financial crisis that had required an IMF bailout. The IMF believed that the peg was necessary to limit growth in the money supply and to contain inflation. However, by the mid-1980s, producer prices had risen significantly in Mexico without a corresponding adjustment in the exchange rate. By the mid-1990s, Mexico’s trade deficit was $17 billion, and investors, reassured by the government’s pledge to maintain the peg, poured money into the country. Eventually though, currency traders concluded that a devaluation of the peso was necessary, and began to dump the currency. The government, after initially trying to maintain the exchange rate, suddenly devalued the peso, which combined with other selling, added up to a 40 percent drop in value!
At this point, the IMF stepped in to provide assistance and help the country get back on track.
The causes of the financial crisis that swept across Southeast Asia in 1997 were actually the result of various factors that had occurred in the previous decade.
During the decade prior to the crisis, huge increases in exports helped to fuel a boom in commercial and residential property, industrial assets, and infrastructure. While some of the investment made sense, a lot of it was based on unrealistic expectations about future demand, and so, there was a significant amount of excess industrial and office capacity as a result.
Some countries saw investments in new factories as a means of boosting economic growth. In South Korea for example, the chaebol were encouraged to build, but then, because the factories were based on unrealistic demand expectations, companies had trouble making the payments on the debt they had taken on to do so.
Many of the debts were dollar based, and when inflation and increasing imports put downward pressure on currencies, the debt payments became even more difficult to make. Remember, if you’ve taken on a debt at one rate of exchange and then you have to pay it back by buying dollars with a currency that has lost value, the debt becomes more expensive!
Keep in mind that imports across the region were continuing to rise during the 1990s, and many countries had current account deficits. Indonesia’s current account deficit represented 3.5 percent of its GDP for example, and Thailand’s was more than 8 percent!
Things came to head in Thailand in mid-1997 when it became evident that several key financial institutions were on the brink of default. They had made loans to companies that weren’t being repaid, making it difficult to meet their own debt obligations.
Speculation about the baht was high, and short selling began. Initially, the Thai government tried to defend its currency, but then more or less gave up, and allowed the baht to float against the dollar. The value of the baht dropped by 55 percent!
Thailand turned to the IMF for help, but speculation continued to affect the region, and the currencies of Malaysia, Indonesia, and Singapore all fell. Traders were worried that many of the same factors that affected Thailand like excess investment, high levels of debt, and trade deficits would also cause distress in other parts of Asia, and so, dumped those currencies as well causing the countries to also turn to the IMF for assistance.
So, how has the IMF done? In 2006, it was committed to helping 59 countries. All of its packages come with conditions that typically involve tight macroeconomic policy and tight monetary policy. However, not everyone thinks this is the right policy to take. You can see the package that was given to Turkey in the Country Focus in your text.
The IMF has been criticized for having a one-size-fits-all approach to macroeconomic policy. Critics argue that what might be right for one country isn’t necessarily best for another country. For example, many critics felt that applying the same policies that were used for countries with excessive government spending to Asia, where there was significant private sector debt, was not appropriate.
Critics have also complained that the IMF has been exacerbating moral hazard which occurs when people behave recklessly because they know they’ll be saved if things go wrong. In other words, because the IMF provides a safety net, countries may not always make the best decisions for their economies. For example, banks in Japan were willing to extend loans to overextended Asian companies during the 1990s when they shouldn’t have.
Finally, there is concern that the IMF has too much power, and too little accountability. Keep in mind, that while the IMF has its detractors, it also has its supporters.
What are the implications of all of this for managers? Well, companies need to focus on currency management, business strategy, and corporate-government relations. Let’s talk about each one.
Companies must realize that the foreign exchange system that’s currently in place is a mixed system where government intervention and speculation can influence exchange rates. Speculative buying and selling of currencies can create a volatile situation that companies need to protect themselves against.
Remember that while exchange rate movements can be difficult to predict, they can have a significant impact on business. Recall also that while individual transactions can be hedged through the forward market, firms need to maintain strategic flexibility to protect against economic exposure.
In 2007, many companies faced the challenge of dealing with a weak dollar. Some foreign suppliers have decided that rather than risk trying to pass the effects of the declining dollar on to consumers in the form of higher prices, they’ll simply take accept a smaller profit margin instead.
You can also see how Airbus has met the challenges of economic exposure in the Management Focus in your text.
Finally, companies need to keep in mind that they can influence a government’s policy towards the international monetary system. Exporters in the U.S. for example, have lobbied for devaluations in the dollar to make exports more attractive in foreign markets. In 2007, though the U.S. officially supported a strong dollar, it lack of intervention in the market to support a weakening dollar presented a challenge to many companies.
Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?
Question 1: When the foreign exchange market determines the relative value of a currency, a _______ exchange rate systems exists.
Fixed
Floating
Pegged
Market
If you picked B, you’re right!
Question 2: The gold standard was a _______ exchange rate system.
Fixed
Floating
Pegged
Market
If you picked A, you’re correct!
Question 3: Floating exchange rates were acceptable under the
Bretton Woods Agreement
The Gold Standard
The Jamaica Agreement
The Louvre Accord
The correct answer is C. Did you get it right?
Question 4: The most common exchange rate policy among IMF members today is the
Free float
Managed float
Fixed peg
Adjustable peg
Did you pick B? I hope so!
