a brief history of the ims up to ww ii outline mercantilism the gold standard the inter-war period
TRANSCRIPT
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A brief history of the IMS
Up to WW II
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Outline
Mercantilism
The Gold Standard
The Inter-War Period
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The International Monetary System
All foreign exchange arrangements and mechanisms used by various countries
It requires some degree of economic organization, integration, and international cooperation
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The IMS
A true IMS appears when international trade becomes:
• significant• permanent• subject to international laws
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Why is international trade so important?
It generates foreign exchange
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IMS: Glossary of terms
• convertibility = exchanging paper money for gold
• exchange rate = the price of one currency expressed in terms of another currency
• fixed exchange rate system = a system in which governments maintain a fixed exchange rate for long periods of time
• floating exchange rate system = a system in which exchange rates are determined by the market
• devaluation = decrease in the price of a currency under a fixed exchange rate system
• revaluation = increase in the price of a currency under a fixed exchange rate system
• weakening (depreciation) = decrease in the price of a currency under a floating exchange rate system
• strengthening (appreciation) = increase in the price of a currency under a floating exchange rate system
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1156: Earliest known foreign exchange contract
Two brothers borrow 115 Genovese pounds and agree to reimburse the bank's agents in
Constantinople the sum of 460 bezants one month after their arrival in that city.
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History of the International Monetary System
• Mercantilism: XVI and XVII centuries• Bi-metallism and free trade: up to 1875• Classical Gold Standard: 1875 - 1914• Interwar Period: 1915-1944• Bretton Woods : 1944• The Gold Exchange Standard (1945-1971)• The current IMS
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1500-1540:
On average between 1,000 and 1,500 kg. of gold reach Spain each year during this period, obtained by plunder, especially from the Aztecs and Incas
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1615
First balance of trade and balance of payments calculations
The calculations for England by Sir Lionell Cranfield and Mr. Wolstenholme are referred to by Sir Francis Bacon in an essay written in 1616
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Oliver Cromwell
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Mercantilism: XVI and XVII centuries
• Tough restrictions on imports (see the Navy Act)
• Aggressive promotion of exports
• Hoarding of precious metals (see Hernan Cortez)
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The Industrial Revolution
England becomes the most productive country in the world
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England gains supremacy of the sea...
…and free trade
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Bi-metallism and free trade: up to 1875
Coinage was maintained for both gold and silver until the price of silver came down
• Britain abolishes the coinage of silver in 1814
• US abolishes the coinage of silver in 1873
• France abolishes the coinage of silver in 1878
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Classical Gold Standard: 1875 - 1914
Gold gains unchallenged supremacy
National currencies are fully convertible
Gold can be freely imported and exported
Trade imbalances are corrected through the price-specie-flow mechanism
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1914 - 1918
The Great War
The demise of the great European empires
The first communist country: USSR
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Germany: The 1920s
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Weimar Republic’s money:The 20 billion mark banknote
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Interwar Period: 1915-1944
Hyperinflation in many European countries
The end of the Gold Standard
Economic nationalism and trade wars
Lack of international cooperation
The Great Depression
The rise of the US as a major economic and political power