Reserve Currency System UNT College of Arts and 储备货币体系 UNT艺术学院.pptVIP

ECON 4420 MIRI NAM * Types of Fixed Exchange Rate Systems 1. The Reserve Currency Standard 2. The Gold Standard 3. The Gold-Exchange Standard * Rules 1. Reserve Currency 1) Fix currency to another currency 2) Central bank must hold a stock of foreign exchange reserves to facilitate FOREX interventions 2. Gold Standard 1) Fix currency to a weight of gold 2) Central bank freely exchanges gold for a currency with public * 3. Gold-Exchange Standard 1) Reserve country fixes its currency to a weight of gold 2) All other countries fix their currencies to reserve 3) Reserve central bank freely exchanges gold for currency with other central banks 4) Non-reserve countries hold a stock of the reserve currency to facilitate intervention in the FOREX * What’s a Reserve Currency Standard? 1. The typical method for fixing a currency today 2. Most countries that fix its exchange rate will fix to a currency that either is prominently used in international transactions or is the currency of a major trading partner * How does a Reserve Currency System work? 1. The workings or a reserve system are illustrated by the system based on the U.S. dollar 2. Central banks held a large portion of their international reserves in the form of U.S. Treasury bills and short-term dollar deposit * Example 1 Suppose Britain decided to fix its currency to the dollar at the exchange rate E$/￡=1.50 To maintain this fixed exchange rate, the Bank of England would stand ready to exchange pounds for dollar (or dollars for pounds) upon demand at the specified exchange rate * Example 2 Suppose FFr 5 per dollar while DM 4 per dollar The exchange rate between FFr and DM remains constant at DM 0.80 per franc=(DM 4 per dollar)/(FFr 5 per dollar) 1) At rate of DM 0.85 per franc, DM would