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25 Cards in this Set
- Front
- Back
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International monetary system
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the institutional framework within which international payments are made, movements of capital accommodated, and exchange rates among currencies are determined
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Stages of change for the International Monetary system
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1. Bimetallism: Before 1875
2. Classical gold standard: 1875-1914 3. Interwar period: 1915-1944 4. Bretton Woods system: 1945-1972 5. Flexible exchange rate regime: since 1973 |
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Gold standard
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A monetary system in which currencies are defined in terms of their gold content. The exchange rate between a pair of currencies is determined by their relative gold contents
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Bimetallism
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A double standard maintaining free coinage for both gold and silver
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Price-Specie-Flow Mechanism
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Under the gold standard, it is the automatic correction of payment imbalances between countries. This is based on the fact that, under the gold standard, the domestic money stock rises or falls as the country experiences inflows or outflows of gold
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Sterilization of gold
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matching inflows and outflows of gold respectively with reductions and increases in domestic money and credit
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Bretton Woods system
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An international monetary system created in 1944 to promote postwar exchange rate stability and coordinate international monetary policies. Otherwise known as the gold-exchange system
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Par value
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The nominal or face value of stocks or bonds
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Gold-exchange standard
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A monetary system in which countries hold most of their reserves in the form of a currency of a particular currency. That country is on the gold standard
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Triffin Paradox
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Under the gold exchange standard, the reserve-currency country should run a balance of payments deficit, but this can decrease confidence in the reserve currency and lead to the downfall of the system
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Special Drawing Rights (SDRs)
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An artificial international reserve created by the International Monetary Fund (IMF) which is a currency basket currently comprised of four major currencies
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Jamaica Agreement
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International monetary agreement in January 1976 by which flexible exchange rates were accepted and gold was abandoned as an international reserve asset
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Plaza Accord
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G-5 agreement in 1985 that depreciation of the dollar is desirable to correct the U.S. trade deficits
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Louvre Accord
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An agreement in 1987, prompted by the dollars decline, in which the G-7 countries (i) cooperate to achieve greater exchange rate stability and (ii) consult and coordinate their macroeconomic policies
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Managed-Float System
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Established by the Louvre Accord in 1987, it allows the G-7 countries to jointly intervene in the exchange market to correct over- or undervaluation of currencies
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Currency Board
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An extreme form of the fixed exchange rate regime under which local currency is fully backed by the U.S. dollar or another chosen standard currency
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European Currency Unit (ECU)
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A basket currency made up of a weighted average of the currencies of the 12 members of the European Union. The precursor of the Euro
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Exchange Rate Mechanism (ERM)
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The procedure, prior to the introduction of the euro, by which EMS member countries collectively manage their exchange rates based on a parity grid system, a system of par values between ERM countries
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Maastricht Treaty
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Treaty signed in December 1991 states that the European Union will irrevocably fix exchange rates among member countries by January 1999 and introduce a common European currency which will replace individual national currencies
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European Monetary Union (EMU)
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The monetary union of 11 countries of the EU that irrevocably fixed their exchange rates and use the common euro currency
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European Central Bank (ECB)
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The central bank of the 11 countries that make up the EMU, responsible for maintaining price stability via monetary policy
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Eurosystem
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The monetary authority comprised of the European Central Bank (ECB) and the central banks of euro-zone countries responsible for implementing the common monetary policy
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Optimum currency area
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A geographical area that is suitable for sharing a common currency by virtue of a high degree of factor mobility within the area
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Tobin Tax
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A tax on the international flow of hot money proposed by Professor Tobin for the purpose of discouraging cross-border financial speculation
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Gresham's Law
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Under the bimetallic standard, the abundant metal was used as money while the scarce metal was driven out of circulation, based on the fact that the ration of the two metals was official fixed
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