Exchange Rate Regimes Dipak Abhyankar Fiat Currency Paper Currency (and Nickel Coins) is called as...
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- Exchange Rate Regimes Dipak Abhyankar
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- Fiat Currency Paper Currency (and Nickel Coins) is called as
Fiat Currency Intrinsic Value of Fiat Currency is far less than its
face value. It is used as currency just because the Government has
certified it. It is a promissory note.
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- Fiat Currency It is a paper currency, vetted by the Government.
Its intrinsic value is much less than its face value.
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- Fiat Currency Shows true colors in crisis Promise is valid till
certifying authority (The Government) exists and is strong enough.
German Woman is burning currency notes to cook her meal after World
War II
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- Fiat Currency Because of hyper inflation in Zimbabwe its fiat
currency has lost its value They print Billion dollar notes. It
takes thousands of dollars to buy a loaf of bread in Zimbabwe.
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- Fiat Currency In Argentina in 2002 Crisis, there was lots of
rioting and unrest because of paper currency loosing its value
(Hyper Inflation) If one does not place an order in a restaurant
within half an hour, there was a risk of menu rates going up,
because of hyper inflation!
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- So far Barter Experiments of Sea-shells etc Gold Gold Specie
Standard Gold Bullion Standard Gold Exchange Standard Concept of
Fiat Currency
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- Till World War I Gold Standard Notes (Bullion, Exchange
Standard) No collective effort to bring uniformity across the
globe
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- 1918-19 Paris Peace Conference In principle resolution for free
trade and capital flows [League of Nations] 1922 Genoa- Re
established gold standard for some European countries 1930 Rome-
Established Bank of International Settlements BIS 1933 London-
Tried to re establish fixed parities; but US did not support Till
World War II
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- 1944 Town: Bretton Woods in the USA 44 Countries Participated
This was after World War II
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- BRETTON WOODS VIDEO Dipak Abhyankar Institute 9820321404
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- Outcome of Bretton Woods Conference Discussions for Signing an
Agreement: GATT Formation of two supranational institutions: IMF
and World Bank [Bretton Wood Twins] World Monetary System Bretton
Woods System
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- Bretton Woods in Pictures The Conference Indian Delegation to
Bretton Woods
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- Bretton Woods System USA volunteered to peg its currency, US
Dollar to Gold It declared to make it a rigid parity Parity was
fixed at $35 for 1 Oz of Gold.
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- Bretton Woods System US Dollar fixed to Gold All other
currencies fixed to Dollar
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- Bretton Woods System System worked well till 1960s Other
economies; especially European economies were working on
development projects
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- Robert Triffin Professor Robert Triffin first identified a
problem with the fixed parity (Bretton woods) system
Belgian-American economist Robert Triffin, who first identified the
problem in 1960.
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- Triffins Dilemma US was the supplier of Dollars to the world US
was the net importer and net investor; resulting in BoP deficits
BoP deficit is not sustainable for long
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- Triffins Dilemma If US stops supplying Dollars; then the system
will fail for the lack of liquidity If US continues to run deficit;
and supply Dollars; the system would loose confidence in Dollars
The system would fail
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- Bretton Woods ..towards failure Gold Convertibility Clause
Unconditional conversion of US Dollar to Gold Difficult to Honor
USA defaulted on demand of Gold US printed more dollars than the
Gold Quantity they had
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- Smithsonian Agreement Smithsonian InstituteTry to revive
Bretton Woods US Dollar parity was changed to $38 for an Ounce of
Gold Thus the Dollar was devalued However, the system could not
sustain even that parity
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- Bretton Woods Failure Most countries delinked their currencies
with US Dollar by 1971 Officially Bretton Woods was declared
withdrawn in 1978
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- New Age Systems Lets study now the new systems
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