Post on 13-Jan-2016
International finance 120181-1165
The international monetary system at present
International finance 120181-1165
Lecture outline
Flexible ER system after 1973
The development of the international financial market
The development of euromarkets
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The IMS after 1973
The basis of the present system
Advantages and disatvantages of flexible
ER
Speculation
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The first oil shock
1973-1975
Increase of the oil price supply shock
Wages and prices interdependence
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First oil shock
Stagflation
Economic policy- international shifting of
expenses
Money supply increase in industrialized
countries
Current account- surplus countries OPEC
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Changes on the financial markets
Depreciation of USD - 1976-1979
Political imbalance in international
economic relations
1979- US monetary policy shifts
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The second oil shock
1979-1980
Inflation increase in importing countries
Contractionary monetary policy in
industrialized countries
Economic recession
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Recesion in the 80-ties
Inflation decrease in industrialized
countries
Large ER destabilization
Frequent CB interventions
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Recesion in the 80-ties
Fiscal expansion in the US
The multiplier effect
Constant appreciation of USD
US BP deterioration
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Recesion in the 80-ties
Protectionism
„Benign neglect” interventionism
Coordination of exchange rate policy
- 1985
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Recesion in 80-ties
Inflationary pressure at the end of the 80-
ties: UE
USA
Japan
The ERM problem
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The 90-ties
A series of currency crises
Counteracting ER crises
A new element of the IMS- the euro area
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The IMS in ‘90/2000
Global imbalance
Export supporting strategy in China and
Japan
Changes of the global reserves
structure
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The IMS in ‘90/2000
Increase of international i%
interdependency
Increase of the international savings flow
New ER systems
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The IMS till 2005- an assessment
International money supply
Intenational liquidity
Global equilibrium
Framework for the national policy
ER stabilisation
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Ocena działania MSW do 2005 r.
Monetary policy
IMS symmetry
Adjustment mechanism
Coordination
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Monetary policy
CB autonomy
Reconciling the internal and external
equilibrium
CB interventions
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IMS symmetry
Assymetric roles of currencies
The global reserve structure
Symmetry vs. stabilisation
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Adjustment mechanisms
Structural changes in the global economy
The role of capital flow liberalisation
Empirical verification
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International cooperation stabilisation
Coordination
Destabilising speculation
The impact on international trade and
investments
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The development of the international financial markets
Increasing liquidity
The role of derivatives
Growing role of capital markets
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Increased liquidity
Capital flow liberalisation
Technological progress
New instruments and products
New risk managament techniques
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Increased role of derivatives
New risk hedging techniques
Basic and structurized intrument
Growing role of speculation
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Growing role of capital markets
Malejąca rola banków w pośrednictwie
finansowym
The bond market
The stock market
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Daily turnover on the FX market
Source: BIS
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1992 1995 1998 2001 2004 2007 2010
mld USD
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Daily turnover on the derivatives market
Source: BIS
mld USD"
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
1998 2001 2004 2007 2010
mld USD"
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The development of euromarkets
The eurocurrency market
The eurobonds market
The eurostock market
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The eurocurrency market
Eurocurrency- a deposit or a loan allocated or gained in
a specific currency beyond the territory of functioning of
this currency
Main influence on the establishment of the market-
eurodollars in the 50-ties
Europound market, Eurofranc market, Euroeuro market
Example: A deposit in USD in Tokyo
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Reasons for creation
Supply side BP deficit in the USA
i% spread between Europe and the US
Occassionaly factors
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Reasons for creation
Demand side: New way of using USD
EU- integration processes
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How does it work?
A German bank allocates a deposit at a US
bank it can borrow the money to a French
bank
The French bank may borrow this money to a
Japanese bank
At the eurocurrency market the monetary
multiplier does not work !!!
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How does it work?
The interbank market and beyond
The borrowed moneyis not under the
jurisdictionof the CB
The need of sterilization
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The advantages
Simple way of settling transactions
Large liquidity
An advantagous i% level
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The eurobonds market
A bond issued in the national currency
which is traded outside the territory of the
national monetary jurisdiction
The creation of the system- the 60-ties
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The eurobonds market
Reasons for creation Income equalisation tax
Spread of rates of returns between European and
US bonds
12-15% of global bond issuance
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How does it work?
Consortium
Underwriters
Selling group
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Eurostocks
Securities which are issued by company
on foreign markets denominated in
another currency than the national
currency of the issuer
Its creation-80-ties
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Summing up
Floating ER after 1973
The development of the financial markets
The development of the euromarkets
Global imbalances
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References
P. Krugman, M.Obstfeld, International economics: theory and policy,
Pearson, Addison Wesley, Boston 2009 Triennial Central Bank Survey, Foreign exchange and derivatives market
activity in April 2010, Monetary and Economic Department, Bank of
International Settlements, 2010. P. Bożyk, J. Misala, M. Puławski, Międzynardowe stosunki ekonomiczne,
PWE, 2002. International banking and financial market developments, Monetary and
Economic Department, Bank of International Settlements, 2000 Offshore markets for the domestic currency: monetary and financial
stability issues, Workin Papers, Monetary and Economic Department, Bank
of International Settlements, 2010