ch16Exchange-Rate Systems(国际经济学-浙江林学院,岑丽娟).pptVIP

Carbaugh, Chap. 16 International EconomicsBy Robert J. Carbaugh8th Edition Chapter 16: Exchange-Rate Systems Exchange rate practices Floating rate - market determined Float independently Float in unison with a group of other countries Adjust according to a formula Fixed (“pegged”) rate Peg to a single major currency Peg to a basket of currencies Peg to gold (obsolete) Fixed exchange rates Fixed exchange rates are normally used by small developing nations to peg to a key currency For international settlement purposes To stabilize import/export prices with the main trading partner To reduce inflationary expectations Pegs can be established To a single currency To a trade-weighted basked of currencies To the special drawing right (SDR), a basket established by the IMF Key currencies: Share of national currencies in total identified official holdings of foreign exchange, 1998 Fixed exchange rate system Establish a par value against one or more key currencies Create a stabilization fund to defend this fixed rate Government must be ready to make good on all demands to convert to/from foreign currency At some point, because of basic economic changes, the fixed rate can become impossible to defend and must be changed Exchange rate stabilization under fixed rates Exchange rate stabilization under fixed rates Devaluation and revaluation Devaluation is intended to lower the value of a currency relative to other currencies, correcting a balance of payments deficit Revaluation is intended to raise the currency’s value relative to other currencies, correcting a surplus Devaluation and revaluation Legally, the changes are made in the par value of the home currency in terms of the reference currency Economically, the effect is to change the value of the currency relative to the main trading partners - who may retaliate by changing their own fixed rates Devaluation/revaluation: legal and economic impact Devaluation/revaluation: legal and economic impact Currency boards vs. dollari