Chapter 8: Fixed Versus Floating: International Monetary Experience

Question 1

Gold Standard

Answer 1

A system in which the value of a country’s currency was fixed relative to an ounce of gold and, hence, relative to all other currencies that were also pegged to gold. The requirements of the gold standard were strict: although monetary authorities could issue paper money, they were obliged to freely exchange paper currency for gold at the official fixed rate

Question 2

Base (Center) Currency

Answer 2

A currency to which other currencies peg.

Question 3

Asymmetric Shock

Answer 3

Shocks that are dissimilar across countries

Question 4

Fear of Floating

Answer 4

Some developing countries may be less willing to allow their exchange rates float

Question 5

Fixed Exchange Rate Systems

Answer 5

A complex arrangement of fixed exchange rate agreements

Question 6

Reserve Currency Systems

Answer 6

A system in which there are N countries, one of whom is the center country, and their currency is the base or center currency to which other countries peg.

Question 7

Cooperative Arrangements

Answer 7

Sometimes, shocks are asymmetric. In a system of fixed exchange rates, you need to be nice to help everybody.

Question 8

Beggar Thy Neighbor

Answer 8

Home can improve its position at the expense of foreign and without foreign’s agreement

Question 9

Seigniorage

Answer 9

Inflation tax imposed upon countries that attempt to monetize their debt (increase inflation)