European Community
Corruption Perception Index
Transparency International Gottingen University Berlin, Germany http://www.transparency.org
Corruption Perception Index
Rank Country Score
1
2
3
4
5
6
2014 Corruption Perception Index
Rank Country Score
1 Denmark 92
2 New Zealand 91
3 Finland 89
4 Sweden 87
5 Norway 86
5 Switzerland 86
2014 Corruption Perception Index
Rank Country Score
170 Iraq 16
171 S. Sudan 15
172 Afghanistan 12
173 Sudan 11
174 N. Korea 8
174 Somolia 8
2014 Corruption Perception Index
Rank Country Score
10 Canada 81
15 Japan 76
17 U. S. A. 74
26 France 69
100 China 36
103 Mexico 35
Shapiro: Chapter 3
The International The International Monetary SystemMonetary System
Alternative Exchange Rate Systems
Free (“Clean”) Float Managed (“Dirty”) Float Target-Zone Fixed Rate Hybrid
Free (“Clean”) Float System
Supply & demand for currency Price level changes (inflation) Interest rate differentials Economic growth Exchange rates fluctuate randomly Adjust quickly to new information
Managed (“Dirty”) Float System
Central bank intervention Reduce economic uncertainty Impact on domestic economy Appreciation (reduces exports) Depreciation (higher inflation)
Managed (“Dirty”) Float System
Categories:– 1. smoothing daily fluctuations– 2. “leaning against the wind”– 3. unofficial pegging
Fluctuating Value of the Yen[¥ per $,1954 - 2015]
“Japan spends 4 trillion yen on currency interventions in September”
-MSNBC, 9/30/03
“Japan spent more than 4 trillion yen ($36.2 billion) over the last month intervening in currency markets, adding to a record figure it has spent this year in an aggressive yen-weakening campaign that has been criticized by its trading partners.”
“Japan spends 4 trillion yen on currency interventions in September”
-MSNBC, 9/30/03
“That brought the total for the year to 13.48 trillion yen ($122.01 billion). The cumulative figure has already surpassed the previous full-year record of 7.64 trillion yen in 1999.”
“Japan spends 4 trillion yen on currency interventions in September”
-MSNBC, 9/30/03
“Japanese officials often threaten to step into the market to prevent ‘excessive’ movements by the Japanese currency, whose fluctuations have a direct impact on profits by exporters.”
Target-Zone Arrangement
Adjust national economic policies
Maintain exchange rates in a “band” around official rates
European Monetary System (EMS)
Target-Zone Arrangement[European Currency Unit (ECU)]
electronic unit of account – 1979-1999 composite currency twelve European countries exchange rate mechanism (ERM) originally a ±2.25% range
Target Zone Arrangement[European Monetary System]
80
85
90
95
100
105
110
115
120
1 2 3 4 5 6 7 8 9
Time
Exc
hang
e R
ate
Central Rate
Target Zone Arrangement[European Monetary System]
9596979899100101102103104105
1 2 3 4 5 6 7 8 9
Time
Exc
han
ge R
ate +2.25%
-2.25%
Target Zone Arrangement[European Monetary System]
9596979899100101102103104105
1 2 3 4 5 6 7 8 9
Time
Exc
han
ge R
ate +2.25%
-2.25%
Target Zone Arrangement[European Monetary System]
+2.25%
-2.25%
?
?
Target Zone Arrangement[European Monetary System]
+2.25%
-2.25%
Buy
Sell
Target-Zone Arrangement[European Currency Unit (ECU)]
electronic unit of account – 1979-1999electronic unit of account – 1979-1999 composite currencycomposite currency twelve European countriestwelve European countries exchange rate mechanism (ERM)exchange rate mechanism (ERM) originally a ±2.25% rangeoriginally a ±2.25% range adjusted to a ±15% rangeadjusted to a ±15% range
Target Zone Arrangement[European Monetary System]
80
85
90
95
100
105
110
115
120
1 2 3 4 5 6 7 8 9
Time
Exc
han
ge R
ate +15%
-15%
+2.25%
-2.25%
European Monetary Union Maastricht Treaty (7 Feb. 1992) Single central bank (ECB) Single European currency (“Euro”) Qualification standards
– inflation– currency stability– national debt and deficit
European Monetary Union[Convergence Criteria]
Inflation: no more than 1.5% above avg. of three members with lowest rate
L-T interest rate: no more than 2% above avg. of three members with lowest rate
Fiscal deficit: no more than 3% of GDP
Govt. debt: no more than 60% of GDP
European Monetary Union[Advantages]
Lower currency conversion costs Eliminate risk of currency fluctuations Encourage trade and investment Efficient allocation of resources Coordinate monetary policy Similar inflation rate
Fixed-Rate System(Bretton Woods)
Target exchange rates Central bank buys or sells currency to
maintain rate Coordinated monetary policy Same inflation rate for each country Sacrifices control of domestic economic
policy
The Gold Standard
Why? Distrust of fiat (paper) money and governments
Automatic adjustment mechanism “price-specie-flow” mechanism
Reasons for Currency Crises
Global trade links Integrated financial systems Debt policy – excessive short-term
debt
Avoiding Financial Crises
Currency controls Freely floating currency Fixed exchange rates Better information
Economics U$A Video
“Exchange Rates”
[# 1183]