Publication Services. Charles S. Gardner prepared this version. The Pros and Cons of Full Dollarization Since the end of the Bretton Woods system of fixed exchange rates nearly thirty years ago‚ the old dilemma facing countries of finding workable currency exchange arrangements has become more challenging‚ and the choices have become more varied. The decision about which exchange rate system to adopt has become more difficult as world trade and capital markets have become more integrated. New problems
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many countries accepted it as a common medium of exchange. Despite it acceptance on in the international market‚ many times there were discontentment between trade members as it was not a stable medium of exchange. A major force that affects currency exchange rates is the Balance of Payments (BOP) of the various member countries. For this reason‚ governing bodies such as the IMF were established for member countries that may have difficulties keeping their Balance of Payment out of deficit.
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the instruments the Federal Reserve uses for controlling the money supply? Please give a description of how each of the instruments works to increase and decrease the money that is in the economy. Open-Market Operations – The Fed conducts open-market operations when it buys government bonds from or sells government bonds to the public. When the Fed sells government bonds‚ the money supply decreases. When the Fed buys government bonds‚ the money supply increases. Reserve Requirements - The Fed also
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pee1. Indian currency (INR) has depreciated close to 22% in the last 1 year. In the article we will try to study the concerns of a country facing depreciating currency‚ the factors that led to this depreciation and the measures government can take to stabilize the situation. Most importantly we will see if global economic uncertainty rides over all the other domestic factors to determine strength of a currency especially in developing economies. Why don’t we need a depreciating INR? The persistent
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domestically raised capital could not be used for the financing of local investment initiatives that promote economic growth. As Mohr (2003: 2) states‚ “Between January 1990 and June 1994‚ there was a steady net outflow of capital not related to reserves of almost R27 billion‚ partly as a result of repayments of foreign debt emanating from the 1985 debt standstill arrangement”. This effectively meant that South Africa had very little funds available for boosting the
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U.S. Dollar Adopted by the United States on July 6‚ 1785‚[3] the U.S. dollar is the currency most used in international transactions.[4] Several countries use the U.S. dollar as their official cur- rency‚ and many others allow it to be used in a de facto capacity. In 1995‚ over US $380 billion were in circulation‚ two-thirds of which was outside the United States. By 2005‚ that figure had doubled to nearly $760 billion‚ with an estimated half to two-thirds being held overseas‚[5] representing an
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The term quantitative easing (QE) describes a process in which the Federal Reserve expands its balance sheet through purchasing back government bonds from financial institutions with electronically created funds. The government purchases‚ by way of account deposits‚ give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. As the supply of medium and long-term government bonds decreases
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CHAPTER 2 SUMMARIZED NOTES A) THE EVOLUTION OF INTERNATIONAL MONETARY SYSTEM 1) THE CLASSICAL GOLD STANDARD ERA (1870-1914) Characteristics: All currencies are valued in terms of their gold equivalent and thus all currencies are linked together. Eg: 1 ounce of gold = $20.67 1 ounce of gold = £4.25 so 1£ = (20.67 /4.25) = $4.87 Money has a value fixed in terms of commodity gold. Since gold is costly to produce‚ governments could not easily increase their
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Dollarization occurs when a country uses foreign currency in parallel to or instead of the domestic currency as a medium of exchange within the domestic economy. This term may not only applied to usage of the US dollar‚ but generally to the use of any foreign currency as the national currency. There are two common indicators of dollarization. * The Amount of foreign currency deposits in the domestic banking system. * The Amount of all foreign currency deposits held by domestic residents at home
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Peso Depreciation Currency Depreciation - is the loss of value of a country’s currency with respect to one or more foreign reference currencies‚ typically in a floating exchange rate system. Currencies are not equal to one another in their value and thus purchasing power. Most but not all currencies‚ can and do experience changes in their values compared to other currencies‚ this being called appreciation when their value increases and depreciation when their value decreases. Peso depreciation means
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