Exchange Rate Regimes

International Finance

TY BMS

Gold Standard Systems

Prof. Dipak Abhyankar9820321404NoteBe sure that the speakers are on!Exchange Rate RegimesDipak Abhyankar

Barter System

AdvantageNo Government InterventionNo Paper CurrencyNo managed inflation

LimitationsDivisibilityBarter System

LimitationsDivisibilityBarter System

Stocking Value for long

LimitationsDivisibilityStocking value for longFair price discoveryBarter System

Experiments

Sea ShellsClay TabletsPrecious Stones

Gold and Silver

MonometalismBimetallism

Gold Standard Systems

Gold Specie StandardActual Use of Gold Coins

Gold Specie StandardActual Use of Gold CoinsAdvantages

People are using real value

No certification required

Exchange Rate is simple and stable

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Gold Specie StandardActual Use of Gold CoinsLimitations Larger Space requirement for stocking

Inconvenient to Carry Risk of Theft

Gold Specie Standard

Gold Specie Standard

Gold Bullion Standard

Gold Bullion Standard

Currency is pegged with Gold with a specified quantityPegged

Gold Bullion Standard

Unconditional Promise to convert Fiat Currency to GoldPegged

Gold Bullion StandardAdvantagesControlled Money SupplyAnti InflationaryExchange Rate is simple and stableCarries advantages of Divisibility, Stocking of credits and easier pricing

Pegged

Gold Bullion StandardDisadvantagesInflationary measures are not possible, and hence full employment and growth objectives are not achievedDifficult to honor unconditional promise in war and crisis

Pegged

Gold Exchange Standard

Currency in Gold Exchange Standard is pegged with another currency with specified equation [Currency B]That another Currency is pegged with gold [Currency A]Currency B is in Gold exchange standardCurrency A is in Gold Bullion StandardCurrency B

PeggedCurrency A

Gold Standard SystemsGold Bullion StandardPaper (Fiat) Currency Pegged with Gold

Gold Exchange StandardPaper (Fiat) Currency pegged with another currency which in turn is pegged with Gold

Gold Specie Standard`Actual Use of Gold Coins

Money is a headacheand Money is the cure