week 4 evolution of international monetary system Flashcards
1
Q
what are the three liberalism and their time staps
A
- classical liberalism (late 1800’s-1914) (gold standard)
- pro: predictable exchange rate
- con: slow money growth (discovery of new gold)
- con: intrinsically deflationary (no spending) - embedded liberalism (1945-1975) (bretton woods till 1973)
- more democracy, decolonization
- embed market into society
- dollar fixed to gold
- pro: democratic accountability
- pro: reduced k. mobility created almost no crises
- con: US responsibility
- con: inflationary system - neoliberalism (since 1975) (post bretton woods)
- around 1975 pushback against strict separation of economics and politics as disciplines
- mostly floating currencies
- pro: cheaper capital
- con: conditionality of policies
- con: capital can just leave a country fast
2
Q
what is the impossible trinity / three policy options?
A
- free k.mobility
- fixed exchange rates
- independent monetary policy
3
Q
situation A; free k. mobility & fixed exchange rates
A
(e.g. individual members of the eurozone)
- historically, classic liberalism had this
- how democratic is this?
4
Q
Situation B; fixed exchange rates & policy autonomy
A
- gives stability and democratic
- reduces currency risk
- but no free k. mobility, which means less FDI flows and restricted access to funds for investments
- e.g. embedded liberalism (used to be China)
5
Q
situation C: free k. mobility & policy autonomy
A
- most countries today & Eurozone collectively
- neoliberalism
6
Q
what happened in France in 1981?
A
tried to make the impossible trinity less impossible, which did not work. They had fixed exchange rates and k. movement was restricted, but became less so. There was demand & supply and thus some k. mobility. The bank of France sold reserves to keep the exchange rate fixed, but reserves run out and that’s why it’s not possible in the longterm.
