international finance 120181-1165 the international monetary system at present

International finance 120181-1165

The international monetary system at present


Lecture outline

Flexible ER system after 1973

The development of the international financial market

The development of euromarkets


The IMS after 1973

The basis of the present system

Advantages and disatvantages of flexible

ER

Speculation


The first oil shock

1973-1975

Increase of the oil price supply shock

Wages and prices interdependence


First oil shock

Stagflation

Economic policy- international shifting of

expenses

Money supply increase in industrialized

countries

Current account- surplus countries OPEC


Changes on the financial markets

Depreciation of USD - 1976-1979

Political imbalance in international

economic relations

1979- US monetary policy shifts


The second oil shock

1979-1980

Inflation increase in importing countries

Contractionary monetary policy in

industrialized countries

Economic recession


Recesion in the 80-ties

Inflation decrease in industrialized

countries

Large ER destabilization

Frequent CB interventions



Fiscal expansion in the US

The multiplier effect

Constant appreciation of USD

US BP deterioration



Protectionism

„Benign neglect” interventionism

Coordination of exchange rate policy

- 1985


Recesion in 80-ties

Inflationary pressure at the end of the 80-

ties: UE

USA

Japan

The ERM problem


The 90-ties

A series of currency crises

Counteracting ER crises

A new element of the IMS- the euro area


The IMS in ‘90/2000

Global imbalance

Export supporting strategy in China and

Japan

Changes of the global reserves

structure


The IMS in ‘90/2000

Increase of international i%

interdependency

Increase of the international savings flow

New ER systems


The IMS till 2005- an assessment

International money supply

Intenational liquidity

Global equilibrium

Framework for the national policy

ER stabilisation


Ocena działania MSW do 2005 r.

Monetary policy

IMS symmetry

Adjustment mechanism

Coordination


Monetary policy

CB autonomy

Reconciling the internal and external

equilibrium

CB interventions


IMS symmetry

Assymetric roles of currencies

The global reserve structure

Symmetry vs. stabilisation


Adjustment mechanisms

Structural changes in the global economy

The role of capital flow liberalisation

Empirical verification


International cooperation stabilisation

Coordination

Destabilising speculation

The impact on international trade and

investments


The development of the international financial markets

Increasing liquidity

The role of derivatives

Growing role of capital markets


Increased liquidity

Capital flow liberalisation

Technological progress

New instruments and products

New risk managament techniques


Increased role of derivatives

New risk hedging techniques

Basic and structurized intrument

Growing role of speculation


Growing role of capital markets

Malejąca rola banków w pośrednictwie

finansowym

The bond market

The stock market


Daily turnover on the FX market

Source: BIS

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1992 1995 1998 2001 2004 2007 2010

mld USD


Daily turnover on the derivatives market

Source: BIS

mld USD"

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1998 2001 2004 2007 2010

mld USD"


The development of euromarkets

The eurocurrency market

The eurobonds market

The eurostock market


The eurocurrency market

Eurocurrency- a deposit or a loan allocated or gained in

a specific currency beyond the territory of functioning of

this currency

Main influence on the establishment of the market-

eurodollars in the 50-ties

Europound market, Eurofranc market, Euroeuro market

Example: A deposit in USD in Tokyo


Reasons for creation

Supply side BP deficit in the USA

i% spread between Europe and the US

Occassionaly factors


Reasons for creation

Demand side: New way of using USD

EU- integration processes


How does it work?

A German bank allocates a deposit at a US

bank it can borrow the money to a French

bank

The French bank may borrow this money to a

Japanese bank

At the eurocurrency market the monetary

multiplier does not work !!!


How does it work?

The interbank market and beyond

The borrowed moneyis not under the

jurisdictionof the CB

The need of sterilization


The advantages

Simple way of settling transactions

Large liquidity

An advantagous i% level



A bond issued in the national currency

which is traded outside the territory of the

national monetary jurisdiction

The creation of the system- the 60-ties



Reasons for creation Income equalisation tax

Spread of rates of returns between European and

US bonds

12-15% of global bond issuance


How does it work?

Consortium

Underwriters

Selling group


Eurostocks

Securities which are issued by company

on foreign markets denominated in

another currency than the national

currency of the issuer

Its creation-80-ties


Summing up

Floating ER after 1973

The development of the financial markets

The development of the euromarkets

Global imbalances


References

P. Krugman, M.Obstfeld, International economics: theory and policy,

Pearson, Addison Wesley, Boston 2009 Triennial Central Bank Survey, Foreign exchange and derivatives market

activity in April 2010, Monetary and Economic Department, Bank of

International Settlements, 2010. P. Bożyk, J. Misala, M. Puławski, Międzynardowe stosunki ekonomiczne,

PWE, 2002. International banking and financial market developments, Monetary and

Economic Department, Bank of International Settlements, 2000 Offshore markets for the domestic currency: monetary and financial

stability issues, Workin Papers, Monetary and Economic Department, Bank

of International Settlements, 2010

international finance 120181-1165 the international monetary system at present

Documents

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