Evolution of world

currency system

By Agabekova Alina 1381

WCS has passed 4 stages of

evolution:

• «The gold standard» or the Parisian currency system (since 1867 for 20th years);

• The Genoa currency system (since 1922 for 30th years);

• Bretton Woods system of the fixed rates of exchange (since 1944 for 1976);

• The Jamaican system of swimming currency courses (since 1976-1978 on the present).

System of «The gold standard»

The beginning of the gold standard has been defined by Bank of England in 1821. Legally this system has been issued by the interstate agreement at the Parisian conference in 1867 which recognized gold as the unique form of world money.

The main principles of «The gold

standard» were the following:1. The gold maintenance of national monetary units was

established;2. Gold carried out function of world money, and consequently,

general means of payment;3. Banknotes of issue central banks freely exchanged on gold. The

exchange was made on the basis of their gold parities, that are weight quantity of pure gold containing in them;

4. The exchange rate could deviate monetary parities in limits of "gold points» (+/- 1 %, actually it was the fixed rate of exchange);

5. Except gold, in the international turn the English pound has been recognized;

6. The rigid parity between national gold reserves and the internal offer of money was supported;

7. Deficiency of balances of payments became covered by gold.

Advantages of «The gold standard»

• maintenance (обеспечение) of stability both in internal, and in external economic policy;

• stability of exchange rates that provides reliability of forecasts of monetary streams of the company, planning of expenses and profit.

Disadvantages of «The gold standard» • the established dependence of monetary

weight on extraction and gold manufacture (opening of new deposits and increase in its extraction led to transnational inflation);

• impossibility to spend the independent monetary and credit policy directed on the decision of internal problems of the country.

The main principles of «The gold

exchange standard» were the

following:• direct method — for the currencies which were carrying out a role of mottoes (pound, dollar);

• indirect method— for all other currencies of this system.

The main principles of «The Bretton

Woods system» were the following:• the gold has kept function of world money;• there were used reserve currencies — US dollar, English pound;• the Exchequer of the USA has established obligatory exchange of

reserve currencies on gold at an official rate: 1 dollar was equated to 0,88571 of gold;• each national monetary unit had currency parity in gold and dollars;• the fixed rates of exchange were established, the deviation from

currency parity without the permission of IMF was supposed only in a limit ±1 %;

• regulation of currency relations was carried out by the international currency-credit organizations — the International Currency Fund and the International Bank of Reconstruction and Development;

• at infringement of payment balances it was authorized to settle their with gold.

Causes of the crisis of the Bretton

Woods monetary system

• Instability and economic contradictions;• Rise in inflation had a negative impact on world

prices and the competitiveness of firms;• Instability of the Balance of Payments;• Discrepancy principles of the Bretton Woods

system; was changed balance of power on the world stage

• Revitalization of the "Eurodollars" market;

* the gold standard was officially abolished;* demonetization of gold was fixed, the abolition of its function of world money;* banned gold parity - the currency peg to gold;* Central Bank allowed to sell and buy gold as a commodity at a price of "free" market; * introduced a standard SDR (Special Drawing Rights) to be used as world money, and to establish exchange rates, estimates of official assets and other;*reserve currencies officially recognized by the U.S. dollar, deutsche mark, pound sterling, Swiss franc, Japanese yen, French franc;* set to freely floating exchange rates, their formation in the global currency market on the basis of supply and demand; *allowed to self-determination of nations exchange rate regime.

The main principles of «The  Jamaican currency system » were

the following:

The main goals of the European

Monetary System1) To ensure the achievement of economic

integration;2) Create a zone of European stability with its own currency as opposed to Jamaican currency system

based on a dollar standard, the lack of which hampered the cooperation of member countries of the European Community in the implementation of common programs and their mutual trade relations:3) To protect the Common Market of the expansion

of the dollar:4) bring together economic and financial policies of

the participating countries.

the European Monetary System

includes three main elements1) ECU - a conditional collective currency, based

on the 12 currencies of the leading countries of Europe outside the EU. The weight of each currency in the basket is determined according to the proportion held by the member state in EU GDP and exports within the Union, so the most tangible component of the ECU is the German mark;

2) co-floating exchange rate fluctuating within +/- 2.25% since August 1993. due to the worsening problems of currency fluctuations beyond widened to ± 15% ("European currency snake");

3) exchange rate mechanism and intervention.

Advantages of «The European monetary

system» 1) the successful development of the ECU, which has

acquired a number of features of world currencies, but it is not yet in the fullest sense;

2) mode of coordinated exchange rate fluctuations within a narrow range, the relative stabilization of

currencies, although periodically revised their exchange rate relationships;

3) association of 20% of official gold and dollar reserves;4) the development of credit and financial mechanism to

support member countries;5) interstate and partly supranational regulation of the

economy.

Disadvantages of «The European monetary

system» 1) EMU does not include all the European currencies.2) Although the range of fluctuations in exchange rates in the EMU has decreased considerably, from time to time is adjusted exchange rates. The weakest currency devalued, and stronger revalviruyutsya.3) The weakness of EMU by a considerable structural imbalance of economy of member countries, differences in the level and pace of economic development, inflation, balance of payments.4) Coordination of economic policy also faces the reluctance of member countries to transfer their sovereign rights to supranational bodies.5) Private ECU are not related to the official ECU single emission center and mutually convertible.6) Issue ECU relatively modest effect on the mutual operations of central banks of EU countries, although in 1985 their right to use the ECU for the repayment of mutual debt expanded from 50 to 100%.7) The functioning of the EMU is complicated by external factors.

The END!