The international monetary system
Contents
Introduction
Chapter 1. International monetary system
1.1 Currency and its types
Chapter 2. The main world currency - Euro, Dollar, Yuan
2.1 Euro
2.2 Dollar
2.3 Yuan
Chapter 3. Euro, Dollar, Yuan today and Scenarios on the Future of
the International Monetary System
Conclusion
Bibliography
Introduction
The initiative on Euro, Dollar, Yuan
Uncertainties - Scenarios on the Future of the International Monetary System began
in early 2011 against a background of increasing concerns among many Forum
members and constituents about the state of the global economy. Currency
volatility and fiscal crises have consistently featured as key global risks in
the World Economic Forum’s Global Risks Report in past years. Over the course
of 2011, the escalating sovereign debt crisis in Europe, discussions around the
sustainability of US debt levels and questions around economic reforms in China
have exacerbated the challenges to global economic stability. In this context,
the Forum has mobilized key resources, including its Strategic Foresight,
Europe, Financial Services, Global Risksand Global Agenda Council teams, to
initiate a process aimed at supporting stakeholders in better understanding how
these uncertainties may play out, and how stakeholders can prepare for
plausible yet challenging alternative scenarios.report is the synthesis of the
insights generated in a process engaging over 200 policy-makers, private sector
leaders and academic experts through discussions and a series of high-level
workshops in Brussels, New York, London, Beijing, Davos-Klosters and Dalian.
This dynamic interaction complements a number of related Forum initiatives
including those of the Global Agenda Councils on the International Monetary
System, Fiscal Crises and Institutional Governance Systems, the B20 Task Force
on the Future of the International Monetary System, as well as the Remodelling
Europe Initiative which intends to deepen policy discussions on how to provide
a more stable economic environment and increase the growth outlook for Europe.
We hope that you find the insights informative and thought-provoking, and that
this report will continue to serve as the basis for productive strategic
conversations between stakeholders. The way policy-makers deal with these
internal adjustment challenges will significantly influence the context for the
future of the international monetary system. The dominant narrative of how
these adjustments will play out is that the continued growth of imbalances will
progressively undermine international faith in the US dollar, leading to a
gradual rebalancing towards the euro and eventually the yuan. The result will
be a multipolar “tripod" of reserve currencies, which under cooperative
management, creates a self-supporting system that is more resilient to the
build-up of imbalances than a system characterized by a single reserve
currency.
Chapter
1. International monetary system
At the base of the international macroeconomics
is the present international monetary and financial system, which indirectly
reflects the relationships between the various actors in the international
economy.international monetary and financial system (international monetary
system) - enshrined in international agreements form of monetary and financial
relations that operate independently or serving international movement of goods
and factors of production.and financial system is a necessary link that lets
you develop international trade, financial instruments and movement of factors
of production. It consists of two groups of elements:
. Foreign exchange elements, namely the national
currency, the conditions of mutual convertibility and circulation, exchange
parity exchange rate and the national and international modes of regulation.
. Financial elements, namely the international
financial markets and trading mechanisms specific financial instruments -
currency, securities, loans.element can be considered international payments,
which serve the movement of goods, services and factors of production and
financial instruments.
1.1 Currency
and its types
Currency - is any product that is able to carry
cash as a means of exchange in the international market. In a narrow sense - is
the cash portion of money that circulates between countries. [1]types of
Currencies:
. According to holder:
· National
currency (legal tender of a country that used in the country)
· Foreign
currency (legal tender of other countries, legally or not legally available in
her country.)
· Reserve
currency (include only those in which governments hold liquid international reserves
(USD, Euro, Swiss Franc, Japanese Yen)
· Currency free
use (include all those affected by major international agreements (Ruble,
Indian rupee, Mexican peso, Brazilian real, Chinese Yuan)
3. According the stability of currency exchange
rate:
· Hard currency
(exchange rate stable and depends on macroeconomic fluctuations)
· Not stable
currency (exchange rate changes quickly and unpredictably)
4. According the degree of convertibility
· Free
convertible
· Convertible
for current transactions
· Convertible
capital transactions
· Internally
convertible
· Externally
convertible
Economic globalization is the increasing economic
integration and interdependence of national, regional and local economies
across the world through an intensification of cross-border movement of goods,
services, technologies and capital. [1] Whereas globalization is a broad set of
processes concerning multiple networks of economic, political and cultural
interchange, contemporary economic globalization is propelled by the rapid
growing significance of information in all types of productive activities and
marketization, and by developments in science and technology. [2]globalization
primarily comprises the globalization of production and finance, markets and
technology, organizational regimes and institutions, corporations and labour.
[3]economic globalization has been expanding since the emergence of
trans-national trade, it has grown at an increased rate over the last 20-30
years under the framework of General Agreement on Tariffs and Trade and World
Trade Organization, which made countries gradually cut down trade barriers and
open up their current accounts and capital accounts. [2] This recent boom has
been largely accounted by developed economies integrating with less developed
economies, by means of foreign direct investment, the reduction of trade
barriers, and in many cases cross border immigration.growth accelerated and
poverty declined globally following the acceleration of globalization.capita
GDP growth in the post-1980 globalizers accelerated from 1.4 percent a year in
the 1960s and 2.9 percent a year in the 1970s to 3.5 percent in the 1980s and
5.0 percent in the 1990s. This acceleration in growth is even more remarkable
given that the rich countries saw steady declines in growth from a high of 4.7
percent in the 1960s to 2.2 percent in the 1990s. Also, the non-globalizing
developing countries did much worse than the globalizers, with the former's
annual growth rates falling from highs of 3.3 percent during the 1970s to only
1.4 percent during the 1990s. This rapid growth among the globalizers is not
simply due to the strong performances of China and India in the 1980s and
1990s-18 out of the 24 globalizers experienced increases in growth, many of
them quite substantial." [15]to the International Monetary Fund, growth
benefits of economic globalization are widely shared. While several globalizers
have seen an increase in inequality, most notably China, this increase in
inequality is a result of domestic liberalization, restrictions on internal
migration, and agricultural policies, rather than a result of international
trade. [15]has been reduced as evidenced by a 5.4 percent annual growth in
income for the poorest fifth of the population of Malaysia. Even in China, where
inequality continues to be a problem, the poorest fifth of the population saw a
3.8 percent annual growth in income. In several countries, those living below
the dollar-per-day poverty threshold declined. In China, the rate declined from
20 to 15 percent and in Bangladesh the rate dropped from 43 to 36 percent.
[15]are narrowing the per capita income gap between the rich and the
globalizing nations. China, India, and Bangladesh, once among the poorest
countries in the world, have greatly narrowed inequality due to their economic
expansion. [15]global financial system includes three types of financial
markets - stock, currency and commodity. The stock market operates securities:
shares, bills, certificates of deposit, bonds, checks. A large proportion of financial
transactions in commodity market comes from oil, gold, sugar, grain. In the
foreign exchange market operations performed with world currencies - the US
dollar (USD), euro (EUR), British pound (GBP), Swiss franc (CHF), Chinese Yuan
and Japanese yenoyu (JPY) and so on.the global financial system, there are
three main groups of participants:
· banks and
multinational companies;
· international
portfolio investors (pension, insurance, investment funds);
· international
official borrowers (government and municipal authorities, international and
regional organizations) [1].
currency international monetary system
Chapter
2. The main world currency - Euro, Dollar, Yuan
The rapid integration of global trade and capital
flows over the past decades has made the links that connect different parts of
the world economy ever more central to global prosperity. Yet the practices and
institutions that regulate these links - the international monetary system - as
well as the main international currencies that underpin this system are
increasingly challenged.this backdrop, it is clear the current dollar-based
international monetary system needs to evolve. But how it will evolve is highly
uncertain. The widespread view is that the world is moving towards a multipolar
currency system based on the euro, dollar and yuan. But each of these currency
areas faces the need for significant internal adjustments that constrain their
future international roles:Eurozone is plagued by a weak governance structure,
fragmented sovereign debt markets and an uncertain growth outlook.United States
must contend with a dim fiscal position, a persistently large trade deficit and
a political system at risk of resorting to protectionism.the yuan is to rise to
international significance, China will have to ensure continued growth, resolve
systemic weaknesses in its financial system and address limitations stemming
from its system of capital controls.adjustment processes play out as complex
two-level games. While at the global level synchronous and coordinated
adjustments between individual players may be desirable, the challenges they
face at the national and regional levels may direct them to take decisions that
can lead to sub-optimal global outcomes.
2.1 Euro
The euro (sign: €; code: EUR) is the currency
used by the Institutions of the European Union and is the official currency of
the eurozone, which consists of 18 of the 28 member states of the European
Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia, and Spain. [3] [4] Lithuania is adopting the euro as its official
currency in place of the lithuanianlitas on 1 January 2015. [5] The currency is
also officially used by a further four European countries, and unilaterally by
two others, and is consequently used daily by some 334 million Europeans as of
2013. [6] Outside of Europe, a number of overseas territories of EU members
also use the euro as their currency., 210 million people worldwide as of
2013-including 182 million people in Africa-use currencies pegged to the euro.
The euro is the second largest reserve currency as well as the second most
traded currency in the world after the United States dollar. [7] [8] [9] As of
August 2014, with more than €995 billion in circulation, the euro has the
highest combined value of banknotes and coins in circulation in the world,
having surpassed the U. S. dollar. [note 15] Based on International Monetary
Fund estimates of 2008 GDP and purchasing power parity among the various
currencies, the eurozone is the second largest economy in the world. [10]name
euro was officially adopted on 16 December 1995. [11] The euro was introduced
to world financial markets as an accounting currency on 1 January 1999,
replacing the former European Currency Unit (ECU) at a ratio of 1: 1
(US$1.1743). Physical euro coins and banknotes entered into circulation on 1
January 2002, making it the day-to-day operating currency of its original
members. [12] While the euro dropped subsequently to US$0.8252 within two years
(26 October 2000), it has traded above the U. S. dollar since the end of 2002,
peaking at US$1.6038 on 18 July 2008. [13] Since late 2009, the euro has been
immersed in the European sovereign-debt crisis which has led to the creation of
the European Financial Stability Facility as well as other reforms aimed at
stabilising the currency. In July 2012, the euro fell below US$1.21 for the
first time in two years, following concerns raised over Greek debt and Spain's
troubled banking sector. [14] As of November 2014, the euro-dollar exchange
rate stands at ~ US$1.25. [15]euro is the sole currency of 18 EU member states:
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland,
Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia, and Spain. These countries constitute the "eurozone", some
332 million people in total as of 2013. [6]all but two of the remaining EU
members obliged to join, together with future members of the EU, the
enlargement of the eurozone is set to continue. Outside the EU, the euro is
also the sole currency of Montenegro and Kosovo and several European
microstates (Andorra, Monaco, San Marino and the Vatican City) as well as in four
overseas territories of EU members that are not themselves part of the EU
(Saint Barthélemy, Saint Pierre
and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the euro
outside the EU affects nearly 3 million people.is also gaining increasing
international usage as a trading currency, in Cuba, [7] North Korea, and Syria.
[8] There are also various currencies pegged to the euro (see below). In 2009,
Zimbabwe abandoned its local currency and used major currencies instead,
including the euro and the United States dollar. [9]most obvious benefit of
adopting a single currency is to remove the cost of exchanging currency,
theoretically allowing businesses and individuals to consummate previously
unprofitable trades. For consumers, banks in the eurozone must charge the same
for intra-member cross-border transactions as purely domestic transactions for
electronic payments (e. g., credit cards, debit cards and cash machine
withdrawals).absence of distinct currencies also theoretically removes exchange
rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot
financial crisis means that the situation is not quite so simple. The risk of
unanticipated exchange rate movement has always added an additional risk or
uncertainty for companies or individuals that invest or trade outside their own
currency zones.companies that hedge against this risk will no longer need to
shoulder this additional cost. This is particularly important for countries
whose currencies had traditionally fluctuated a great deal, particularly the
Mediterranean nations.markets on the continent are expected to be far more
liquid and flexible than they were in the past. The reduction in cross-border
transaction costs will allow larger banking firms to provide a wider array of
banking services that can compete across and beyond the eurozone. However,
although transaction costs were reduced, some studies have shown that risk
aversion has increased during the last 40 years in the Eurozone.
The most obvious benefit of adopting a single
currency is to remove the cost of exchanging currency, theoretically allowing
businesses and individuals to consummate previously unprofitable trades. For
consumers, banks in the eurozone must charge the same for intra-member
cross-border transactions as purely domestic transactions for electronic
payments (e. g., credit cards, debit cards and cash machine
withdrawals).absence of distinct currencies also theoretically removes exchange
rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot
financial crisis means that the situation is not quite so simple. The risk of
unanticipated exchange rate movement has always added an additional risk or
uncertainty for companies or individuals that invest or trade outside their own
currency zones.companies that hedge against this risk will no longer need to
shoulder this additional cost. This is particularly important for countries
whose currencies had traditionally fluctuated a great deal, particularly the
Mediterranean nations.markets on the continent are expected to be far more
liquid and flexible than they were in the past. The reduction in cross-border
transaction costs will allow larger banking firms to provide a wider array of
banking services that can compete across and beyond the eurozone. However,
although transaction costs were reduced, some studies have shown that risk
aversion has increased during the last 40 years in the Eurozone.
· Interest rates
not suitable for whole Eurozone. A common monetary policy involves a
common interest rate for the whole eurozone area. However, the interest rate
set by the ECB may be inappropriate for regions which are growing much faster
or much slower than the Eurozone average. For example, in 2011, the ECB
increased interest rates because of fears of inflation in Germany. However, in
2011, southern Eurozone members were heading for recession due to austerity
packages. The higher interest rates set by the ECB were unsuitable for
countries such as Portugal, Greece and Italy.
· The Euro is
not an optimal currency area. If a state in the US, such as New York,was in
recession, workers in New York could move to New England and get a job.
However, in the Eurozone this is much more difficult; it involves moving
country and possibly learning a new language. There are more barriers to the
movement of labour and capital within a diverse region like Europe. Therefore,
an unemployed Greek can't easily relocate to Germany.
· Limits Fiscal
Policy. With a common monetary policy it is important to have similar
levels of national debt, otherwise countries may struggle to attract enough
buyers of national debt. This is a growing problem for many Mediterranean
countries like Italy, Greece and Spain who have large national debts and rising
bond yields.
· Lack of
Incentives. It is argued that being a member of the Euro protects a country
from a currency crisis. Therefore, there is less incentive for countries to
implement structural reform and fiscal responsibility. For example, in good
years Greece was able to benefit from very low bond yields on its debt because
people felt Greek debt would be secured by rest of Europe. But, this wasn't the
case, and Greece were lulled into a fall sense of security.
· No scope for
Devaluation. Since the start of the Euro, several countries have
experienced rising labour costs. This has made their exports uncompetitive.
Usually, their currency would devalue to restore competitiveness. However, in the
Euro, you can't devalue and you are stuck with uncompetitive exports. This has
led to record current account deficits, a fall in exports and low growth. This
has particularly been a problem for countries like Portugal, Italy and Greece.
·
shows the effects of Eurozone members becoming
uncompetitive. Very high current account deficits.
· No Lender of
Last Resort. The ECB is unwilling to buy government bonds if there is a
temporary liquidity shortage. This makes markets more nervous about holding
debt from eurozone economies and precipitates fiscal crisis. See: Problems of
Italy - why Italian bonds increased despite having a much lower budget deficit
than UK.
Italy bond yields rose despite a primary budget
surplus
· Deflationary Bias I would
argue there is a deflationary bias in the Eurozone which increases the risk of
recession and higher unemployment
members have seen a rise
in unemployment.
· Divergence in
bank rates. In theory, the Eurzone creates a common interest rate. However,
in the credit crisis of 2010-13, we see rising bank rates for peripheral
Eurozone countries, like Italy and Spain. Small and medium sized firms faced
higher borrowing costs than in 2005, even though the ECB cut the main base
rate. This suggests that the ECB was unable to loosen monetary policy when
needed
2.2 Dollar
The United States dollar (sign: $; code: USD;
also abbreviated US$ and referred to as the U. S. dollar, American dollar or US
Dollar) is the official currency of the United States and its overseas
territories. It is a Federal Reserve Note and consists of 100 smaller cent
units. [4]U. S. dollar is fiat money. It is the currency most used in
international transactions and is the world's most dominant reserve currency.
[14] Several countries use it as their official currency, and in many others it
is the de facto currency. [15] Besides the United States, it is also used as
the sole currency in two British Overseas Territories: the British Virgin
Islands and the Turks and Caicos islands.dollar has a special place in the
global economy, being essentially the first truly international currency.world
monetary system spontaneously formed in the XIX century after the industrial
revolution based on gold monometallism in the form of the gold standard.
Legally, it was framed intergovernmental agreement at the Paris Conference in
1867 that recognized the gold the only form of world money. In this system
belonged dollar in 1837 received the gold content. The currency freely
convertible into gold. Gold was used as generally recognized world money.
Gradually the gold standard outlived its usefulness, because did not meet the
increased scale of economic relations and conditions regulated market economy.
The First World War was marked by the crisis of the world monetary system. The
gold standard ceased to function as money and monetary system.War II monetary
system was legally intergovernmental agreement reached at the Genoa
international economic conference in 1922. Its foundation was gold and foreign
currencies. Conversion of currencies into gold was carried out not only
directly (US, France, Britain), but also indirectly through foreign currency
(Germany and another 30 countries whose monetary system based on gold exchange
standard). National credit money were used as international payment and reserve
funds. However, in the interwar period reserve currency status has not been
officially confirmed by either in one currency and the pound sterling and the
US dollar disputed leadership in this area. The Great Depression of 1929-1933.
sharply devalued dollar, its gold content decreased by more than 40%.War II led
to the deepening crisis Genoa monetary system. Anglo-American experts in 1941
rejecting the idea of returning to the gold standard, sought to develop
principles of a new world monetary system that can ensure economic growth and
limit the negative social and economic consequences of the economic crisis. The
desire to secure a dominant position US dollar in the global monetary system is
reflected in terms GD White and formed the basis of the so-called Bretton Woods
monetary system, which has become a third world monetary system. Was introduced
gold exchange standard based on gold and two reserve currencies - the US dollar
and to a much lesser extent pound sterling. Gold continued to be used as an
international payment and reserve means.on its increased monetary and economic
potential and gold reserves, US dollar equated to gold to secure for him the main
reserve currency status. For this purpose, the US Treasury has continued to
negotiate a dollar for gold to foreign central banks and government agencies in
the official price, established in 1934, Based on the gold content of its
currency (USD 35.1 troy ounce equal to 31.1035 grams). This exchange applied
only to member states of the International Monetary Fund (IMF), represented by
their central banks.normal functioning gold standard required the constant
increase in reserves to meet the needs of economic expansion and the
corresponding payment relations in global economic growth and support optimal
ratio between gold and currency (dollar) reserves, so that the price of gold
was equilibrium. Failure to meet these conditions naturally had to lead to the collapse
of the Bretton Woods monetary system. Lack of reserve money (dollars, pounds
sterling, gold) led to inhibition of world trade and excess - to destabilize
the system of fixed exchange rates. High growth rates of foreign exchange
reserves, compared with growth rates of gold reserves over time component
questioned the ability of the US to keep the convertibility of the dollar in
reserves by central banks set official price. In the 60's Dollar virtually
monopolized the sphere of international payments, which is reflected in the
growth of its share in the international reserves of the state from 9% in 1950
to 75% in 1970.
2.3 Yuan
"Idealist buys euro realist - dollars, and
the truly wise man chooses the yuan." This phrase may have become in some
measure winged circulated among financial analysts, but today is used for
almost all those who somehow interested in keeping the money.is in good
climatic conditions, has a lot of cheap labor, and has a strong power to the
people with the ideas and the use of harsh measures in dealing with demographic
and economic issues. The country ranks first in the world in terms of
population, which amounts to more than 1.3 billion people. Residents of the
country are different discipline and hard work. Low wages and favorable
conditions for the functioning of enterprises in export processing zones, a
positive impact on the competitiveness of products, where producers from
developed countries to move production of labor-intensive goods. This
contributes to the specialization of the Chinese economy in the production of
series of industrial products. Industry plays an important role in the economy.
China is the largest exporter of industrial products in the world. Its share of
world exports is around 12%, surpassing the US and Japan.of experts converge.
Perhaps the West, more than 300 years holding in their hands the reins of world
economic processes of the Board, will relinquish the position of the rising
Eastern powers - China and the yuan will replace the dollar as the world's main
reserve currency within the next decade.yuan is the base unit of a number of
former and present-day Chinese currencies, and usually refers to the primary
unit of account of the renminbi, the currency of the People's Republic of
China. [1] It is also used as a synonym of that currency, especially in
international contexts - the ISO 4217 standard code for renminbi is CNY, an
abbreviation of “Chinese yuan”. (A similar case is the use of the terms
sterling and pound to designate the British currency and unit.)yuan (Chinese: 元; pinyin: yuán) is also known colloquially as a kuai (Chinese: 块; pinyin: kuài; literally: "lump"; originally a lump
of silver). One yuan is divided into 10 jiao (Chinese: 角; pinyin: jiǎo;
literally: "corner") or colloquially mao (Chinese: 毛; pinyin: máo "feather"). One jiao is divided into
10 fen (Chinese: 分; pinyin: fēn; literally: "small portion").symbol
for the yuan (元) is also used in Chinese to refer to the
currency units of Japan and Korea, and is used to translate the currency unit
dollar as well as some other currencies; for example, the US dollar is called
Meiyuan (Chinese: 美元; pinyin: Měiyuán; literally: "American yuan") in
Chinese, and the euro is called Ouyuan (Chinese: 欧元; pinyin: Ōuyuán; literally: "European yuan"). When
used in English in the context of the modern foreign exchange market, the
Chinese yuan (CNY) refers to the renminbi (RMB) which is the official currency
used in mainland China.1889, the Yuan was equated at par with the Mexican peso,
a silver coin deriving from the Spanish dollar which circulated widely in South
East Asia since the 17th century due to Spanish presence in the region, namely
Philippines and Guam. It was subdivided into 1000 cash (Chinese: 文; pinyin: wén), 100 cents or fen (Chinese: 分; pinyin: fēn), and 10 jiao (Chinese: 角; pinyin: jiǎo,
cf. dime). It replaced copper cash and various silver ingots called sycees. The
sycees were denominated in tael. The yuan was valued at 0.72 tael, (or 7 mace
and 2 candareens). [3]were issued in yuan denominations from the 1890s by
several local and private banks, along with the Imperial Bank of China and the
"Hu Pu Bank" (later the "Ta-Ch'ing Government Bank"),
established by the Imperial government. During the Imperial period, banknotes
were issued in denominations of 1, 2 and 5 jiao, 1, 2, 5, 10, 50 and 100 yuan,
although notes below 1 yuan were uncommon.earliest issues were silver coins
produced at the Guangdong mint, known in the West at the time as Canton, and transliterated
as Kwangtung, in denominations of 5 cents, 1, 2 and 5 jiao and 1 yuan. Other
regional mints were opened in the 1890s producing similar silver coins along
with copper coins in denominations of 1, 2, 5, 10 and 20 cash. [3] Other
regional mints were opened in the 1890s. The central government began issuing
its own coins in the yuan currency system in 1903. Banknotes were issued in
yuan denominations from the 1890s by several local and private banks, along
with banks established by the Imperial government.central government began
issuing its own coins in the yuan currency system in 1903. These were brass 1
cash, copper 2, 5, 10 and 20 cash, and silver 1, 2 and 5 jiao and 1 yuan. After
the revolution, although the designs changed, the sizes and metals used in the
coinage remained mostly unchanged until the 1930s. From 1936, the central
government issued nickel (later cupronickel) 5, 10 and 20 fen and ½ yuan coins. Aluminium 1 and 5 fen pieces were
issued in 1940.yuan is divided into 10 jiao which, in turn, are divided into 10
fen. There are coins in denominations of 1, 2, 5 fen.institution - the People's
Bank of China (instituted December 1, 1948).1994 to July 2005 the yuan was
tightly tied to the US dollar exchange rate of 8.28: 1.to the beginning of the
XX century the basic monetary unit in China was a silver liang of 10 and 100
maofenyam. For larger payments there were also silver ingots weighing up to 50
liang. In rural areas, were walking the ancient copper coins - tsyani, or
caches. Widespread have notes and coins of different foreign countries.began to
be produced in the form of silver coins in 1835. However, Liang continued to be
in circulation as currency. In lyanah numbered duties (until 1930) and taxes
(until 1933).1933 a law was passed on unification of the monetary system, but
it has not led to the establishment of a single currency. Still widespread
money had various foreign governments and local money.1935 in China actually
acted silver standard. China's currency fluctuated depending on the international
price of silver. On 15 October 1934 the yuan has departed from the value of
silver in the world market due to the establishment of duty on silver exported
from China.1935 was a monetary reform, silver yuan were withdrawn from
circulation and replaced by paper - "Fabi". It was announced on the
refusal of the silver standard and the transition to a currency based on gold,
but without a fixed gold content of the yuan. Excessive issue of paper money
led to inflation of the yuan.Reform in 1948 the gold content of the yuan was
established in 0,22217g pure gold and issued new paper money - "gold
yuan", which exchanged "Fabi" (3 million Fabi 1 "gold
yuan"). The official exchange rate to the US dollar was set at 4 "gold
yuan" to the dollar, but already 12 December 1948 it was devalued to
twenty per dollar.reunification areas liberated Communist People's Liberation
Army of China, there was a merger of local banks. In 1948 was created the
People's Bank of China. Withdrawn from circulation all local currency issued in
different liberated areas, and replaced with banknotes of the People's Bank of
China - renminbi (yuan).the founding of the PRC currency circulation has been
put under strict government control throughout the country. For each district
set the exchange rate of local money on the yuan, taking into account their
purchasing power and social status of their holders.June 1969 it was officially
announced the Latin name of the Chinese money - "Renminbi" (Renminbi
- "the people's money"), which is a unit of the yuan. Until 1974 the
yuan against foreign currencies was established mainly through the pound
sterling, as well as the Hong Kong dollar. Since August 1974 was introduced
daily quotation of RMB against the US dollar and other currencies on the basis
of a basket of currencies.1994, the Chinese authorities have preserved the yuan
exchange rate of $ 1/8.27 yuan. Recently, however, China is under increasing
pressure from the EU, Japan and the United States in particular, insisted on
the liberalization of the renminbi. According to them, the yuan is undervalued
and as a result of Chinese goods gain additional competitive advantage.2005,
China abandoned the peg of the yuan to the dollar and raised the rate of
national currency by 2%. The yuan will now be determined on the basis of its
relation to a basket of several currencies.to Chinese experts peg to a basket
of currencies will make the yuan more responsive to the global economic
situation, but it does not create a threat to the stability of the financial system.
By July 2008 the yuan gradually rose by 21.6% and from that time remains very
stable at 6,82-6,84 yuan per dollar. On 4 November 2009 the Russian currency
rate was 4.29 rubles per 1 yuan. On November 22, 2010 exchange rate of the
Russian currency was already 4.66 rubles per 1 yuan.to the World Bank, in 2003
the purchasing power of the yuan was approximately $ 1/1.8 yuan.
Chapter
3. Euro, Dollar, Yuan today and Scenarios on the Future of the International
Monetary System
On the international currency market affect high
dynamics and migration flows of capital. Changing factors that effecton the
creation of the exchange rate and market structure. The exchange ratio is
increasingly determined by the movement of financial flows, changes in rates of
national currencies depend on the relative profitability of financial
instruments. There is a coincidence and the estimated current exchange rate,
which can be explained by the financial market close relationship with the real
sector. This means that the market exchange rate, which is influenced by
financial flows, also reflects the relative competitiveness of the national
economy.the time the euro increased productivity in the US due to the inflow of
capital in high-tech manufacturing and high economic growth stimulated by the
rise in stocks and the dollar strengthened and its competitiveness. In 1999
became evident correlation between the dynamics of the dollar (and the euro)
and the stock price index for US stock (European) market. All clearly seen
growing role in shaping of the stock price of the dollar. The reason for this
predominance of market shares in the market of government securities and
changes in benefits residents.the turn of the millennium the United States
remained the most attractive spheres of foreign capital, which directed most of
the world flows. In 1999-2000, 62% of the capital exported from countries with
positive current account balance went to the United States. In 1999 completed
the establishment of the euro zone and the single currency was launched in
non-cash transactions from the rate of 1/1.184 USD It had no significant impact
on the inflow of foreign capital in the US, and the dollar continued to grow
now in euros.addition to capital flows, exchange rates reflects the movement
and outflow of capital from domestic markets, which reduces the exchange rate
and therefore increases the rate on opposing currencies. In 1998-2000. there
was a net outflow of capital from Europe, which contributed to the weakening of
the euro in 2001 he continued. European and other investors continued to hope
for a quick recovery of the US economy and the expansion of the financial
market.investors bought a significant number of European shares, increased
purchases of debt securities of the euro area, since the difference in yield
between them and US securities declined.June 1999 in June 2000 the main feature
of the global currency market was weakening of the euro against the dollar.
During 2000-2001, the dollar continued to strengthen., the euro weakened. In 2001
US continued to absorb the lion's share of global capital flows.index of the
dollar against the SDR for the years 1998-2000 rose by 7.5%, to 2001 another
3.5% due to higher net international demand for American assets. This happened
despite a greater decrease in economic growth in US GDP than in other major
countries. Despite the record current account deficit the US dollar held high,
due to capital inflows, which stimulated the conviction that economic growth
will resume, and corporate profitability will increase.2004 US economy there
has been a decline in the dollar began to decline, despite the fact that the
influx of foreign capital in the US in January 2004 reached its historical
peak.this time, the position of the euro increasingly strengthened against the
dollar.respect to our country, strengthening the position of the euro
contributes to higher prices of goods imported from the EU.parallel with these
processes is the growth of the yuan.course, the last 10 years, China's economy
shows more than excellent results. From the point of view of economic power of
the issuing country, the Chinese yuan has all the chances. However, things
cannot happen so quickly, because, firstly, for what would make a currency
reserve, it is necessary to lift restrictions on the convertibility and the
Chinese currency is partially convertible. Second, the dollar is too much tied,
including foreign exchange reserves in most countries.factor contributing to
the prosperity of the yuan, is that the yuan is undervalued. Hence, the yuan
has a chance to grow in the future. On 11.02.2012 the RMB exchange rate is
about 16 US cents. The fact that the yuan is undervalued, talked for a long
time. Despite the fact that the Americans did not like it and they demanded
that China stop understate the rate of RMB, China, it was profitable, because
he worked for export. Many economists, including representatives of the
People's Bank of China, argue that a stronger yuan to China is not needed.
Increasing the rate of the national currency, China will automatically reduce
the competitiveness of their exports, which have a negative impact on the
economy as a whole. Despite ultimatums Western countries, China will continue
to adhere to its policy towards the national currency. Recent years have seen a
gradual strengthening of the yuan against the dollar, but it is precisely the
extent and pace of the theme that benefit the Chinese economy.late 2008, China
announced its intention to make the yuan currency in trade settlements between
the Chinese provinces of Yunnan and Guangxi and the member countries of ASEAN -
Association of South-East Asia. And today there yuan has actually plays the
role of reserve currency. Vietnam, Indonesia, and in other countries in
Southeast Asia, people accumulate yuan, not dollars.should also be noted that
Chinese banks are willing to give foreign companies cheap loans in RMB, the
purpose of which is to spread the yuan over the world. So, they try to make the
yuan relatively affordable and desirable currency trading, loans and as a
result - make China a leader in the global financial market., not so long ago
the authorities allowed a branch of China Bank of China in New York to take
deposits in yuan. Now US investors can buy yuan for their needs. This is
largely due to the internationalization of the yuan, China's wish to make the
yuan popular currency.next point is the reduction of Chinese exports, against
which the yuan can rise. The fact that today is not the best of times for the
economy, export-oriented. China gradually begins to shift to the domestic
market. If the state is set to export - it needs cheap national currency. If
the domestic market, it is better to have an expensive currency. Consequently,
the yuan will rise in value.to the results of World Economic Forum (6.2012)
there are scenarios for the international monetary system in 2030 are as
follows:
Reversion to Regionalism
Fiscal challenges in the Eurozone and the United
States go unaddressed as policy-makers turn inward.global growth and decreased
demand for exports make adjustments to China’s growth model more challenging,
leading to stalling economic reforms.and financial flows decrease at the global
level as countries increase their focus on regional economic ties.
Political deadlock and stagnating growth in
Europe lead to a gradual disintegration of the European Monetary Union.reforms
lead to a gradual unwinding of imbalances between the G2: the United States and
China.high consumption in the United States and the growth of China’s consumer
economy place pressures on natural resource sustainability.
Reconciling a Two-speed World
While Europe successfully reforms its economic
governance and emerges as a fiscal union, markets focus on the US’s
unsustainable fiscal situation.by strong growth, China actively pursues the use
of the renminbi (RMB) for trade among emerging markets.alternative monetary
order emerges with the RMB at its core, and questions emerge about how to
reconcile this two-speed world.scenarios are based on a series of strategic
conversations among industry, public policy and academic leaders from around
the world. They are not intended to be mutually exclusive predictions or the
only possible outcomes. They provide a tool to foster strategic thinking about
these challenges, to stretch the boundaries of what is perceived as possible
and to open up new avenues of potential solutions.UncertaintiesBusiness
Issuesection begins by explaining why uncertainties related to international
currencies create important challenges for businesses, and calls for an
assessment of possible alternative future developments of the international
monetary system.a globalized economy, an orderly international flow of money is
essential. If these flows are uncertain or prone to disruption, global
prosperity can be undermined. In recent years, the vulnerabilities of this
international monetary system have become increasingly apparent through
persistent global imbalances, instability within the Eurozone and a series of
increasingly global financial crises.international monetary system consists of
conventions, policies and institutions governing international payments, the
choice of exchange rate regimes and the supply of reserves. It creates an
environment where international currencies facilitate the exchange of goods and
services, the accumulation of savings, price setting and calibration as well as
the denomination of balance sheets for both public and private actors. It also
allows countries to run deficits in their external accounts and should ideally
contribute to a gradual rebalancing of these external positions.around the
smooth operating or expected outcomes of these functions can have significant
implications for business, in particular when exchange rate volatility affects
costs and prices. This may impinge on investment decisions and reduce
opportunities for growth and job creation - a dynamic playing out around the
world today. The possibility of micro - and macro-shocks makes medium - and
long-term planning more complex, in particular regarding revenue targets,
liquidity management and supply chains. Small and medium-sized enterprises are
particularly affected as they lack the resources multinational companies can
devote to complex treasury operations.Global Trade and Capital Integration with
Fragmented Economic Governancerapid global integration of trade and capital
flows over recent decades has been a key driver of global growth. World trade
almost tripled from the early 1990s to 2010, while international capital flows
increased almost five-fold over the same period (see Figures 1 and 2)
dynamics also fuelled the ongoing shift in
economic power towards emerging economies that have greatly benefited from the
opportunities of foreign investments, global supply chains and open capital
flows.this rapid integration of economic activities, global cooperation on
regulating these flows remains limited. The international monetary system
remains largely unchanged from its origins in a world that was significantly
less economically and financially integrated (see Appendix: Historical Overview
of the International Monetary System). Many observers believe this played a
role in fuelling the global financial crisis that began in 2008. The crisis
spurred an unprecedented degree of global coordination through the G20 process,
including a commitment from the French Presidency in 2011 to reform the
international monetary system. However, a focus on dealing with immediate
pressures, in particular stemming from Europe’s debt crisis, has since
overshadowed these global coordination and reform initiatives.economists and
policy-makers in the West argued that a free-floating regime of convertible
currencies would lead to automatic adjustments and the most efficient
allocation of resources at the global level. But developments over past decades
have not matched these expectations. Countries have not universally discarded
the management of exchange rates, and have often resorted to resolving domestic
economic challenges without regard for external impacts. This has led to an
accumulation of substantial macroeconomic imbalances that have left the
international monetary system increasingly fragile.is clear that given these
pressures, this system has to evolve. The widespread view is that the world is moving
towards a multipolar currency system based on the euro, dollar and yuan, in
which greater competition between reserve currencies would lead to greater
discipline to maintain the respective economies in balance. But the path to
such a system is highly uncertain. These currency areas, each of which could
serve as an anchor for global stability, face the need for significant internal
adjustments that constrain their international roles. This will be further
explored in the following section.World Economic Forum’s Euro, Dollar, Yuan
Uncertainties initiative is aimed at exploring challenging futures where
adjustments within the euro, dollar and yuan areas have a profound impact on
the evolution of the international monetary system. It builds on a series of
strategic conversations with leaders from the public, private and academic
sectors, exploring their most pressing concerns and uncertainties.purpose of
this report is not to advocate or predict specific outcomes. Rather, it
explores the critical uncertainties underlying the future international roles
of the euro, the dollar and the yuan, and depicts possible future states for
the international monetary system based on policy choices in each of the
currency areas. The year 2030 was chosen as a benchmark for these scenarios in
order to allow for significant structural adjustments to play out independently
from current political constraints.has remained relatively recently in the
quiet rivalry Western powers finally came out of the shadows and blooms before our
eyes. Cheap labor, goods and artificial restraint of the yuan exchange rate
played a role. China ranks second in the world in terms of GDP (2010) and the
first in terms of exports. China trade relations established with North
America, Japan, Western Europe and others. In the Republic of China focused a
lot of branches of foreign corporations. Although ten years ago the word
"China" and "low quality" were synonymous, it is now known
that in China there are products in all price categories. Thus, the exported
goods have including the highest standards of quality and in demand almost
everywhere, not to mention the share of Chinese textile and other consumer
goods in the markets of the world.conclusion, I would like to say that, most
likely, while talking about the yuan as a reserve currency is premature, given
that he is far from free convertibility and almost never used outside of the
Asia-Pacific region. But under certain conditions, it is quite possible in the
long term.is believed that the XXI century will be the century of China as the
new world economic center, and without Asian reserve currency that cannot be
achieved.
Conclusion
For many observers, this future is desirable. It
is, however, farfrom certain. Within each individual currency area, the necessaryadjustment
processes may play outsuccessfully, fosteringcontinued growth in the underlying
economy while alleviatingimbalances within the international monetary system.
But they mayalso play out in an unsuccessful manner, due either to a failure ofadjustments
to deliver continued growth or the pursuit of policiesthat serve domestic
interests at the expense of global stability.following section explores how
different combinations of moreor less successful adjustments within each
currency area coulddrive three very different scenarios for the international
monetarysystem in 2030. While these are not the only possible scenarios,they
reflect a range of views expressed by stakeholders overthe course of this
initiative and are intended to stimulate furtherdiscussionare scenarios?are
stories about the future. They represent relevant, plausible, challenging and
divergent possibilities, providing context around an issue for its
stakeholders. Scenarios are not predictions, preferences or forecasts.aim to
shift the focus away from preferences and the false security of predictability.
They are not predictive in terms of assigning any likelihood or probability to
individual scenarios.aim to raise awareness about the fact that opportunities
and risks in each scenario depend on the context, who is involved and how they
relate to the overall system. They are not normative in terms of depicting a
clear best - or worst-case scenario.aim to induce creativity in thinking about
these challenges and stretch the boundaries of what people perceive as
plausible futures for which to prepare. They are not exclusive in terms of
being the only possible futures.
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