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”

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