Mid Term II review part 1 
Mid-term II Recommended Review (Chaps. 6-8)
(as always, be aware of the vocabulary/definitions in the margins of the text)
Chap 6 – International Monetary System
(pls note that this information has also been available on Blackboard as a ppt file “International Monetary System” and a word file “The IMF & The World Bank” and has been reviewed in class multiple times)
From Roman times to 1821 – gold grew as a standard measure of trade.
1821 UK fixed the value of the pound @ GBP 4.247 per ounce & US fixed $ at $20.67 per ounce.
Therefore: GBP 4.247 = $US 20.67
20,67/4.247 = 4.867, therefore 1 GBP = $ 4.867
The Gold Standard
Established fixed rates – minimized fluctuation
Forced monetary policy: printed money had to be backed by gold
Correct trade imbalances – as gold went out, paper money constricted – less demand, lower prices, more export
WWI – gold standard collapsed – too much paper money vs. gold reserves; brief return to gold standard – then world-wide depression (1929), by 1939 system was not really functional.
July 1944 Bretton Woods - forty four countries meet yielding Bretton Woods Agreement - effectively in place until August 1971
Bretton Woods Agreement
Dollar-based system; dollar set at $ 35 ounce of gold; all other currencies set to US dollar, not directly to gold
Only governments could demand conversion of dollar holdings to gold
Creation of the International Monetary Fund (IMF) & World Bank
1971 Nixon ended free convertibility into gold: Bretton Woods – dies an ignoble death
The IMF & the World Bank: Two similar but separate Institutions, with different primary roles supporting the world’s economic and financial order
IMF
Promote monetary cooperation – mechanism for consultation/collaboration on international monetary problems
Exchange rate stability –avoid competitive depreciation
Criticisms:
Stringent conditions for loans, loss of national sovereignty, frequent lack of transparency and national involvement
World Bank
A development
(as always, be aware of the vocabulary/definitions in the margins of the text)
Chap 6 – International Monetary System
(pls note that this information has also been available on Blackboard as a ppt file “International Monetary System” and a word file “The IMF & The World Bank” and has been reviewed in class multiple times)
From Roman times to 1821 – gold grew as a standard measure of trade.
1821 UK fixed the value of the pound @ GBP 4.247 per ounce & US fixed $ at $20.67 per ounce.
Therefore: GBP 4.247 = $US 20.67
20,67/4.247 = 4.867, therefore 1 GBP = $ 4.867
The Gold Standard
Established fixed rates – minimized fluctuation
Forced monetary policy: printed money had to be backed by gold
Correct trade imbalances – as gold went out, paper money constricted – less demand, lower prices, more export
WWI – gold standard collapsed – too much paper money vs. gold reserves; brief return to gold standard – then world-wide depression (1929), by 1939 system was not really functional.
July 1944 Bretton Woods - forty four countries meet yielding Bretton Woods Agreement - effectively in place until August 1971
Bretton Woods Agreement
Dollar-based system; dollar set at $ 35 ounce of gold; all other currencies set to US dollar, not directly to gold
Only governments could demand conversion of dollar holdings to gold
Creation of the International Monetary Fund (IMF) & World Bank
1971 Nixon ended free convertibility into gold: Bretton Woods – dies an ignoble death
The IMF & the World Bank: Two similar but separate Institutions, with different primary roles supporting the world’s economic and financial order
IMF
Promote monetary cooperation – mechanism for consultation/collaboration on international monetary problems
Exchange rate stability –avoid competitive depreciation
Criticisms:
Stringent conditions for loans, loss of national sovereignty, frequent lack of transparency and national involvement
World Bank
A development