presentation on dollar based gold standard by group-09
TRANSCRIPT
Presentation
on
Dollar Based Gold Standard
By
Group-09
Evolution of the International Monetary System
• 1875-1914– Classical Gold Standard
• 1915-1944– Interwar Period
• 1945-1972 – Bretton Woods System
• 1973-Present– The Flexible Exchange Rate Regime
The Gold Standard• Gold standard – a monetary standard
under which the basic currency unit is equal to, and can be exchanged for, a specific amount of gold.
• People still used the same types of currency (greenbacks, silver certificates, etc) as they did before, but now they could exchange them for gold at the Treasury.
• In 1900, US Congress passed the Gold Standard Act which fixed the price of gold at $20.67 per ounce.
– The gold standard had its origin in the use of gold coins as a medium of exchange, unit of account, and store of value.
– The Resumption Act (1819) marks the first adoption of a true gold standard.
– The U.S. Gold Standard Act of 1900 institutionalized the dollar-gold link.
Origins of the Gold Standard
Classical Gold Standard: 1875-1914
• The exchange rate between two country’s currencies would be determined by their relative gold contents.
• If the dollar is pegged to gold at U.S.$30 = 1 ounce of gold, and the British pound is pegged to gold at £6 = 1 ounce of gold, then, $30= £6, or $5= £1
The U.S. & Gold
• Political Failure– When banks began to fail in the early 1930’s, people
began to cash in their U.S. paper currency for gold. So did foreign countries that had U.S. currency.
– With the reality of the U.S. having no gold, the government quit redeeming paper currency for gold.
– On August 28, 1933, FDR declared a national emergency which required all citizens with more than $100 of gold or gold certificates to file a disclosure form with the government.
The U.S. & Gold
• In 1934, the U.S. government fixed the price of gold at $35 per ounce.
• The U.S. then confiscated all the privately owned gold and the U.S. quit exchanging fiat currency for gold.
• This in effect took the U.S. off the gold standard.
• The U.S. continued to fix the price of gold at $35 per ounce until 1971.
Interwar Period: 1915-1944
• Exchange rates fluctuated as countries widely used “predatory” depreciations of their currencies as a means of gaining advantage in exporting .
• The result for international trade and investment was profoundly detrimental.
Bretton Woods System: 1945-1972
• Named for a 1944 meeting of 44 nations at Bretton Woods, New Hampshire.
• The purpose was to design a postwar international monetary system.
• The goal was exchange rate stability without the gold standard.
• The result was the creation of the IMF, World Bank, and establishment of $ based gold standard.
Bretton Woods System
• The International Monetary Fund was created to:– Help countries defend their currencies against cyclical,
seasonal, or random occurrences
– Assist countries having structural trade problems if they promise to take adequate steps to correct these problems
• The International Bank for Reconstruction and Development (World Bank) helped fund post-war reconstruction and has since then supported general economic development.
Bretton Woods System: 1945-1972
German markBritish
poundFrench franc
U.S. dollar
Gold
Pegged at $35/oz.
Par Value
Par ValuePar
Value
Bretton Woods System: 1945-1972
• Under the Bretton Woods system, the U.S. dollar was pegged to gold at $35 per ounce and other currencies were pegged to the U.S. dollar.
• Each country was responsible for maintaining its exchange rate within ±1% of the adopted par value by buying or selling foreign reserves as necessary.
• The Bretton Woods system was a dollar-based gold exchange standard.
Why did Bretton Woods System Fail?
• In 1960, US ran large amount of BOP deficit. By the late 1060s, foreign holdings of $ exceeded the gold reserve at the Fed.
• In Aug. 1970, Nixon declared the end of Bretton Woods fixed exchange rate system.
The International Bank for Reconstruction and Development
Established 1945 184 Members
Cumulative lending: $407.4 billion
Fiscal 2005 lending: $13.6 billion for 118 new operations in 37 countries
The International Development Association
Established 1960 165 Members
Cumulative commitments: $161 billion (includes credits, grants, and guarantees)
Fiscal 2005 commitments: $8.7 billion 160 new operations in 66 countries
The International Finance Corporation
Established 1956 178 Members
Committed portfolio: $24.6 billion (includes $5.3 billion in syndicated loans)
Fiscal 2005 commitments: $5.4 billion for 236 projects in 67 countries
The Multilateral Investment Guarantee Agency
Established 1988 165 Members
Cumulative guarantees issued: $14.7 billion (includes funds leveraged through the Cooperative Underwriting Program)
Fiscal 2005 guarantees issued: $1.2 billion
The International Centre for Settlement of Investment Disputes
Established 1966 142 Members
Total cases registered: 184
Fiscal 2004 cases registered: 25
Thank You