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1、Chapter 7,Macroeconomics of International Currencies,The teaching purpose of this chapter,By the end of the chapter,students should be able to know about:how international currencies originatedwhy there lacks currency substitutionthe Bretton Woods systeminternational monetary system,Copyright 2010 P
2、earson Education,Inc.Publishing as Prentice Hall,2,Different stages of International Monetary System,1）Gold Standard(Mid 1870s Early 1930s)Concept:monetary system in which the standard economic unit of account is a fixed weight of gold.CharacteristicsNational currency defined in terms of gold;Centra
3、l bank ready to buy and sell gold;Gold freely coined and formed;Gold can be exported and imported;,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,3,Gold Standard EraGreat Britain;Germany;USABenefitsFree flows of labor,capital and goods;Rapid economic growth;Stable prices and exchan
4、ge rates.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,4,2）Gold Exchange Standard(19441973)July,1944-delegates from 44 Allied Powers attended UNMFCConcept:US dollar pegged（钉住）to gold and other currencies pegged to US dollarGold fixed at US$35 per ounceExchange rate fluctuation（波动
5、，起伏）:1%Collapse due to:Worldwide inflationOil crisis,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,5,In the early 1970s,the demise of the Bretton Woods system resulted in fundamental changes in the way international monetary system worked.Most important among these changes was tha
6、t the supply and the composition of international liquidity became endogenously determined and the international monetary system departed from a commodity System.fundamental=primary/essentialthe demise（死亡，终结，结束）of the Bretton Woods agreement=the termination/break down of the Bretton Woods agreement,
7、Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,6,3）Free-Floating Exchange Rate System(19731985)Free-Floating Exchange RateSignificant Events1979:European Monetary System,created to promote exchange rate stability in EEC.1982:Mexico defaulted（拖欠，未履行）on US$1000 billion of foreign deb
8、tsUS pursued expansive monetary policyresults:High value of US dollar against other currenciesPlaza AgreementSeptember 1985,Plaza Agreement signed by G5.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,7,4）Managed Float System(1985present)Also called“dirty float”Concept:governments
9、primarily allow market forces to determine exchange rates but regularly intervene in foreign exchange markets,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,8,The international monetary system is the framework within which countries borrow,lend,buy,sell and make payments across pol
10、itical borders.So far the world has gone through the following types of monetary system:a)The gold standardb)The gold exchange standardc)The flexible exchange rate systemd)The managed float,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,9,The foreign exchange market is a place wher
11、e currencies are bought and sold.The interbank market is an informal,over-the-counter,around the clock market including major commercial banks and some specialized brokers.The market is linked by telephone,fax,and the Internet,and the settlement of transactions is done via SWIFT.,Copyright 2010 Pear
12、son Education,Inc.Publishing as Prentice Hall,10,Interpretation of the concept,Fiat system法币/不兑换纸币a monetary system in which the value of money(usually paper money)is determined by a governments fiat or decree.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,11,Commodity standard 商品
13、本位制a monetary system in which the value of money is based on a physical commodity such as gold or silver.gold standard 金本位制A monetary system that currency with a reserve of gold,and allows currency holders to convert their currency into gold.The U.S.went off the gold standard in 1971.,Copyright 2010
14、 Pearson Education,Inc.Publishing as Prentice Hall,12,Deregulated financial market 取消管制/自由化的金融市场financial markets where legal restrictions imposed by the government are lifted（撤销，解除）,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,13,Capital flow资本流动capital control 资本管制Par value平价/面
15、值also called nominal value or face value;the stated value of a currency representing how much the holder is to be paid.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,14,Freely floating exchange rate自由浮动汇率the rate which is allowed to adjust freely to the supply and demand of one cu
16、rrency for another.Portfolio 投资组合combined holdings of assets by an individual or institution,e.g.:bonds,preferred stocks,common stocks or other asset,with the purpose of reducing risk by diversification.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,15,Balance of payments 国际收支The
17、difference between a nations total payments to,and receipts from,foreign nations during a specific periodtrade surplus 贸易顺差A positive balance of trade,i.e.exports exceed imports,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,16,Triffin Dilemma 特里芬难题the conflict between the necessit
18、y for the US to provide liquidity for conversion（变换，转化）of gold into US dollars by running balance of payments current account deficit and the need to maintain confidence in US dollar by running a balance of payments current account surplus.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice
19、 Hall,17,Louvre Accord 卢浮宫协议a meeting of G7 nations in February at Louvre in France to announce that the dollar had fallen to a level consistent(协调，一致)with“economic fundamentals”and that central banks would intervene in FX markets only to ensure stability of exchange rate.,Copyright 2010 Pearson Edu
20、cation,Inc.Publishing as Prentice Hall,18,The Basics of Foreign Exchange Market,The trading of currencies takes place in foreign exchange markets whose major function is to facilitate international trade and investment.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,19,Spot,forward
21、,bid,ask prices,There is an almost bewildering variety of foreign exchange markets abound in a number of currencies.In addition,there are diverse prices for these currencies.Virtually every major newspaper,such as THE WALL STREET JOURNAL or THE LONDON FINANCIAL TIMES,prints a daily list of exchange
22、rates.These are expressed either as the number of units of a particular currency that exchange for one U.S.dollar or as the number of U.S.dollars that exchange for one unit of a particular currency.Sometimes both are listed side by side.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Ha
23、ll,20,For major currencies，up to four different prices typically will be quoted.One is the spot price.The others may be 30 days forward,90 days forward,and 180 days forward.These may be expressed either in European terms(such as the number of U.S.dollar per British Pound sterling)or in American term
24、s(such as number of British Pound sterling per U.S.dollar).Spot price:即期价格,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,21,The spot price is what you must pay to buy currencies for immediate delivery(two working days in the interbank market;over the counter,if you buy bank notes
25、or travelers checks).The forward prices for each currency are what you will have to pay if you sign a contract today to buy that currency on a specific future date(30 days from now,and so on).In this market,you pay for the currency when the contract matures.forward prices:远期价格,Copyright 2010 Pearson
26、 Education,Inc.Publishing as Prentice Hall,22,Why would anyone buy and sell foreign currency forward?There are some major advantages from having such opportunities available.For example,an exporter who has receipts of foreign currency due at some future date can sell those funds forward now,thereby
27、avoiding all risks associated with subsequent adverse exchange-rate changes.Similarly,an importer who will have to pay for a shipment of goods in foreign currency in,say,three months can buy the foreign exchange forward and,again,avoid having to bear the exchange-rate risk.,Copyright 2010 Pearson Ed
28、ucation,Inc.Publishing as Prentice Hall,23,The exchange rates quoted in the financial press are not the ones individuals would get at a local bank.Unless otherwise specified,the published prices refer to those quoted by banks to other banks for currency deals in excess of$1 million.Even these prices
29、 will vary somewhat depending upon whether the bank buys or sells.The difference between the buying and selling price is known as the“bid/ask spread”.The spread partly reflects the banks costs and profit margins in transactions;however,major banks make their profits more from capital gains than from
30、 the spread.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,24,The market for bank notes and the travelers checks is quite separate from the interbank foreign exchange market.For smaller currency exchanges,such as an individual going on vocation abroad might make,the spread is grea
31、ter than in the interbank market.This presumably reflects the larger average cost.As a result,individuals generally pay a higher price for foreign exchange than those quoted in the newspapers.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,25,Exchange Rate Determination,Law of One
32、Price,The starting point for understanding how exchange rates are determined is a simple idea called the law of one price:If two countries produce identical goods,the price of the goods should be the same throughout the world no matter which country produces it.law of one price:一价定律,Copyright 2010 P
33、earson Education,Inc.Publishing as Prentice Hall,27,Suppose that American steel costs$100 per ton and identical Japanese steel costs 10 000 yen per ton.The law of one price suggests that the exchange rate between the yen and the dollar must be 100 yen per dollar($0.01 per yen)in order for one ton of
34、 American steel to sell for 10 000 yen in Japan(the price of Japanese steel)and one ton of Japanese steel to sell for$100 in the United States(the price of U.S.steel).,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,28,If the exchange rate were 200 yen to the dollar,Japanese steel w
35、ould sell for$50 per ton in the United States or half the price of American steel,and American steel would sell for 20 000 yen per ton in Japan,twice the price of Japanese steel.Because American steel would be more expensive than Japanese steel in both countries and is:identical to Japanese steel,th
36、e demand for American steel would go to zero.Given a fixed dollar price for American steel,the resulting excess supply of American steel will be eliminated only if the exchange rate falls to 100 yen per dollar,making the price of American steel and Japanese steel the same in both countries.,Copyrigh
37、t 2010 Pearson Education,Inc.Publishing as Prentice Hall,29,The Theory of Purchasing Power Parity(PPP),One of the most prominent theories of how exchange rates are determined is the theory of purchasing power parity(PPP).It states that exchange rates between any two currencies will adjust to reflect
38、 changes in the price levels of the two countries.The theory of PPP is simply an application of the law of one price to national price levels rather than to individual prices.Purchasing Power Parity(PPP):购买力平价理论(PPP理论),Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,30,Suppose that
39、the yen price of Japanese steel rises 10 percent(to 11 000 yen)relative to the dollar price of American steel(unchanged at$100).For the law of one price td hold,the exchange rate must rise to 110 yen to the dollar,a 10 percent appreciation of the dollar.Applying the law of one price to the price lev
40、els in the two countries produces the theory of purchasing power parity,which maintains that if the Japanese price level rises 10 percent relative to the U.S.price level,the dollar will appreciate by 10 percent.Appreciate:升值;The dollar will appreciate by 10 percent.美元将升值10。美元升值10:a 10 percent apprec
41、iation of the dollar.美元贬值10:a 10 percent depreciation of the dollar.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,31,The Factors to Affect the Exchange Rate in the Long Run,Our analysis indicates that relative price levels and additional factors affect the exchange rate.In the lo
42、ng run,there are four major ones:relative price levels,tariffs and quotas,preferences for domestic versus foreign goods,:and productivity.relative price levels:相对价格水平tariffs and quotas:关税和配额preferences for domestic versus foreign goods:对本国商品相对于外国商品的偏好Productivity:生产率,Copyright 2010 Pearson Education
43、,Inc.Publishing as Prentice Hall,32,The basic reasoning proceeds along the following lines:Anything that increases the demand for domestic goods relative to foreign goods tends to appreciate the domestic currency because domestic goods will continue to sell well even when the value of the domestic c
44、urrency is higher.Similarly,anything that increases the demand for foreign goods relative to domestic goods tends to depreciate the domestic currency because domestic goods will continue to sell well only if the value of the domestic currency is lower.,Copyright 2010 Pearson Education,Inc.Publishing
45、 as Prentice Hall,33,Summary：In the long run,a rise in a countrys price level(relative to the foreign price level)causes its currency to depreciate,and a fall in the countrys relative price level causes its currency to appreciate.长期里，一国价格水平相对于外国价格水平的上升，将导致该国货币贬值；而一国相对价格水平的下降，将导致该国货币升值。Tariffs and qu
46、otas cause a countrys currency to appreciate in the long run.关税和配额使得一国货币在长期中趋于升值。,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,34,Preference for commodities in country A to that in country B cause country A currency to appreciate.对A国的产品相对于B国产品的喜好，使得A国的货币在长期中趋于升值。In the long run,a
47、s a country becomes more productive relative to other countries,its currency appreciates.长期来讲，如果一国生产率较其他国家提高，则这国货币趋于升值。,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,35,key sentences,1)Therefore,although members were required to state par values for their currencies in terms of go
48、ld and to intervene in the foreign exchange markets to keep their currencies within 1 percent of the par value,expressed in gold,in practice members expressed par values in terms of US dollars,and the US stood ready to convert dollars into gold at$35 per ounce.,Copyright 2010 Pearson Education,Inc.P
49、ublishing as Prentice Hall,36,2)This was a period of optimism,reflected in the belief that monetary policy could be independently determined under freely floating exchange rates,but it was soon overtaken by a realism,born of the close connections between the small,open economies and larger ones,whic
50、h emerged toward the end of that decade.,Copyright 2010 Pearson Education,Inc.Publishing as Prentice Hall,37,3)With the growth of holdings in currencies of countries other than the country of residence,the interdependence of monetary policy,which was an accepted result of the international monetary
