International Monetary System Research Articles

Ideas, Interests, and the Transition to a Floating Exchange System

Abstract:Milton Friedman’s idea of flexible exchange rates was heresy for Americans until the mid-1960s. However, by the late 1970s the idea became embedded in academic thought, policymaking, and business practices. This article analyzes how floating currencies, once eschewed, became embraced as legitimate in the US through the late 1960s and early 1970s. It demonstrates how business leaders’ economic interests and laissez-faire economists’ framework for causes of and solutions to business hardships contributed to society’s acceptance of currency flexibility. Increasing societal support of flexible currencies strengthened the power of float-advocates within the US government, facilitating the transition of the international monetary system from fixed exchange rates to floating. This study highlights how material interests and policy discourses contributed to America’s new policy orientation. It also addresses the origins of the neoliberal international financial order by documenting how American elites reconstituted the state-market balance in global finance while navigating monetary crises.

Macroeconomic Determinants of Gold Prices : A Bounds Testing Approach

Despite the demise of gold as a long-standing anchor in the international monetary system, it keeps on alluring its producers, consumers, investors, and speculators over the globe. India is the largest consumer and importer of gold in the world. The investment demand for gold is ascending in India since it is considered as a safe haven. Notwithstanding, high instability in gold prices brings up an issue on its supporting properties. Thus, an attempt was made to identify the macroeconomic determinants of gold prices in India. The study was set to examine the long run as well as short run relationship between gold prices and some macroeconomic variables like BSE Sensex, wholesale price index (WPI), and index of industrial production (IIP) as a proxy of gross domestic product, interest rates, Indian rupee - U.S. dollar exchange rate, and gold reserves of the country. Using the monthly data from April 1995 – March 2018, the relationship was explored empirically by using the autoregressive distributed lag model and error correction model. The ARDL results suggested that the long run cointegration between the prices of gold and the macroeconomic variables during the period of the study and gold reserves of RBI, BSE Sensex, WPI, exchange rate, and IIP were found to be significantly affecting the gold prices. However, interest rates were found to be statistically insignificant during the period of the study. The error correction term, which was negative and highly significant, confirmed the convergence to the long run equilibrium. The results of this study have important implications for the Indian economy and will be helpful for policy formulation.

A global prediction model for sudden stops of capital flows using decision trees.

Capital flows is an important aspect of the international monetary system because they provide great direct and indirect benefits, and at the same time, they carry risks of vulnerability for countries with an open economy. Numerous works have studied the behavior of these flows and have developed models to predict sudden stop events. However, the existing models have limitations and the literature demands more research on the subject given that the accuracy of the models is still poor, and they have only been developed for emerging countries. This paper presents a new prediction model of sudden stop events of capital flows for both emerging countries and developed countries with the ability to estimate accurately future sudden stop scenarios globally. A sample of 103 countries was used, including 73 emerging countries and 30 developed countries, which has allowed the use of sample combinations that consider the regional heterogeneity of the warning indicators. To the sample under study, a method of decision trees has been applied, which has provided excellent prediction results given its ability to learn characteristics and create long-term dependencies from sequential data and time series. Our model has a great potential impact on the adequacy of macroeconomic policy against the risks derived from sudden stops of capital flows, providing tools that help to achieve financial stability at the global level.

Reform of the International Monetary System. Why and How?, by John B.Taylor (MIT Press, Cambridge, MA, 2019), pp. 152.

<i>Reform of the International Monetary System. Why and How?</i>, by John B.Taylor (MIT Press, Cambridge, MA, 2019), pp. 152.

U.S. Monetary Policy: International Results

This article covers the major directions and international results of modern U.S monetary policy. The primary instrument of U.S. monetary policy is the federal fund rate, which is an interest rate on loans of Federal Reserve deposits between commercial banks. The Federal Reserve characterizes its current policy decisions in terms of targets for the federal fund rate. The federal fund rate is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. In the Section 1 the current operating system of the Federal Reserve is being analyzed. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve more accurate tools with which to achieve its strategic objective of influencing inflation and output. Section 2 reviews the major effects of Trump administration monetary policy. The first result of this policy is great increase of money in circulation. This monetary expansion could decrease dollar exchange rate to Chinese currency and some other currencies. U.S. dollar position as an international reserve currency may be weakened. Dollar share in international trade in goods and services may also decrease. Section 3 reviews the effects of U.S. monetary policy for international financial markets. The article covers key theoretical approaches to the problem of development of the international monetary system. Major economic drawbacks of the current international monetary system are being discussed. US dollar position in the international monetary system and in the financial markets is being analyzed.

Complementary currency as an instrument for economic development in the western Balkans

Regional economic integration is regarded as a priority task for western Balkans countries in order to prepare them for integration into the European Union. Given the under-performance between these countries in terms of trade, we propose the creation of a complementary supranational currency that would serve the common market of the western Balkans and also intensify trade exchanges between them. We support the idea that structural reforms and the technical provisions proposed in this adopted Keynes Plan may, at least in principle, provide the necessary solutions to avoid imbalances between the countries; serve as an incentive to intensify trade exchanges; and curb inflationary and deflationary pressures in the joint western Balkans market. Our research makes a solid contribution to the debate on international monetary systems. We believe that a complementary currency would make regional integration more effective within the western Balkans but, furthermore, would also call into question the international monetary system were it to be as effective in practice as we think it would be.

Renminbi Internationalization: Domestic Challenges and External Implications

En este trabajo se investiga el proceso de inserción de la moneda china, el renminbi (rmb), en el Sistema Monetario Internacional (smi). Al analizar el histórico de internacionalización del rmb y los instrumentos que el gobierno chino ha utilizado para esto, se observó que China impulsa su moneda por medio de acciones que in­tentan evitar una sobreexposición de la cuenta capital y financiera, y, por lo tanto, el impacto negativo que los mercados, dominados por los agentes de Wall Street, pueden producir sobre su economía. De este modo, el proceso de internacionalización del rmb es diferente del de todas las monedas que pasaron por internacionalización durante la égida del Dollar Wall Street Regime (dwsr), pues no puede ser sustancialmente controlado por los mercados internacionales. Se interpreta así que esa inserción mo­netaria puede ser vista como una forma de contestación a los mercados financieros globales, al papel del dólar y al ejercicio del poder de Estados Unidos en el sistema financiero y monetario.

Development of national payment systems: problems and prospects

The article presents the theoretical aspects of the payment system, clarifies the definition of the national payment system of a complex and interconnected set of payment and technical elements, each of which contributes to the efficient functioning of both the financial sector and the national economy as a whole. The classification features according to which payment systems are classified are generalized and their types are given. The main tasks of payment systems functioning are outlined. The components of the payment system of Ukraine are considered. The modern basic requirements to payment systems are defined. The current payment systems in Ukraine are analyzed, among which: the national electronic payment system (EPS), created by the National Bank of Ukraine, the National Payment System "Ukrainian Payment Space", 10 intrabank payment systems, 2 money transfer systems, 11 money transfer systems, 1 system settlements and 1 card system created by non-banking institutions, as well as 8 money transfer systems and 4 card payment systems created by non-residents, as well as international payment systems, which include 5 money transfer systems created by Ukrainian banks and 4 money transfer systems created by non-banking institutions . The current state of operations of Ukrainian banks with electronic money is studied. The basic requirements for national payment systems are given. Measures to increase the level of security of the national payment system of Ukraine are outlined. Recommendations for the development of the electronic payment system of Ukraine are presented. Special attention needs to be paid to the development of the national payment system of Ukraine, which depends on the effectively implemented innovations, which consist in the application and expansion of non-cash forms of payment and guarantee of the electronic payment system.

ПОТОЧНИЙ СТАН, ПРОБЛЕМИ ТА ПЕРСПЕКТИВИ РОЗВИТКУ ПЛАТІЖНИХ СИСТЕМ В УКРАЇНІ

The basic prerequisites for the emergence of payment systems, their terminological definition and the main essence are analyzed. The importance of the role of payment systems in the development of the country's financial sector is emphasized. The legal framework for the functioning of payment systems in Ukraine, the tasks solved by payment systems and the requirements that modern payment systems must satisfy in order to be useful for all participants of the payment process and the economy of the country as a whole are outlined. Particularly emphasized is the important function of the payment systems they perform, namely the transmission of a flow of information that contains not only the details of the payment, but also, directly, the transfer of funds. The structure of the modern market of payment systems of Ukraine is outlined. Selected classification of payment systems operating in the Ukrainian market is a system of electronic payments of the National Bank of Ukraine (NBU EPS); card payment systems (NPC "Space", Mastercard, Visa, etc.) and funds transfer systems. The categories of payment systems that are entered in the register of the National Bank of Ukraine (NBU) and which have the right to operate in the territory of our country are distinguished and characterized. The dynamics of the main indicators of the payment systems market for the period from 2017 to 2019 are estimated, the linear growth trend and average growth rates are determined. The key current market problems are identified, namely: monopolization of the national market by international payment systems (MPS); low level of protection of the rights of consumers of payment systems and the companies providing services; lack of financial and payment literacy of some categories of the population; insufficient development of technological payment infrastructure, etc. In view of the existing problems the ways of their solution and overcoming of obstacles are determined. Based on the analysis, the nearest prospects for the development of payment systems in Ukraine are determined. Significantly improved prospects for the future, as well as the ability to analyze the management and organizational aspects of the development of the process of managing payment systems in Ukraine, both in the power and the corporate technology, as well as in the industrial Victoria in the territory of Ukraine.

Banking of foreign economic activity of enterprises on the example of FUIB JSC

The purpose of the article is to develop recommendations for improving the banking services of foreign economic entities. In accordance with the set goal, the task was set: to determine the main banking services provided to the subjects of foreign economic activity, to analyze the state of servicing the foreign economic activity of enterprises in FUIB JSC, to develop recommendations for its improvement. This article reveals that banking services for foreign economic activity of enterprises includes a wide range of operations, in particular, maintaining customer accounts in foreign currency, conducting international settlements for export-import operations, various forms of financing foreign economic activity, etc. We conclude that the specifics of bank financing of foreign economic activity of enterprises is that the loan is provided mainly in foreign currency, respectively, the bank must have a currency license, the lending cycle is tied to the cycle of trade, the bank must have reliable foreign banks -contractors and be a member of SWIFT and other international payment systems, as well as must have qualified personnel in the field of foreign economic activity. This research determines that FUIB JSC does not offer specialized products for foreign trade entities, except for the import of Belarusian equipment. At the same time, the bank focuses on consulting services for foreign exchange transactions and positions itself as a bank for servicing international operations of heavy machinery, fuel and energy complex, manufacturers of mechanical and electrical equipment, metallurgical enterprises. As a result, in order to improve the service, we offered the researched bank to create a club on the basis of existing clients-subjects of foreign economic activity, as well as to use it as a tool to attract new clients. In terms of its content, it will be a community of exporters and importers served by the bank, for which events will be organized to establish international relations, educational activities on various issues of effective foreign economic activity, a specialized trading portal will be created.

The Classic Gold Standard: 1870–1914

Debates on issues about the economy, growth, inequality, fiscal responsibility, and financial crises frequently reduce to debates about money. Moreover, debates about money often reduce to the soundness of money, meaning the ability of a unit of currency to retain its value. Eventually, discussions about soundness touch on the classic era of the gold standard. The aims of this note are to (1) describe the mechanism of the international monetary system known as the gold standard during the time that it had the greatest influence on the global economy; (2) place the gold standard in context with other systems that preceded and followed it; and (3) dispel some enduring misconceptions. Excerpt UVA-F-1921 Nov. 7, 2019 The Classic Gold Standard: 1870–1914 Debates on issues about the economy, growth, inequality, fiscal responsibility, and financial crises frequently reduce to debates about money. Moreover, debates about money often reduce to the soundness of money, meaning the ability of a unit of currency to retain its value. Eventually, discussions about soundness touch on the classic era of the gold standard. The aims of this note are to (1) describe the mechanism of the international monetary system known as the gold standard during the time that it had the greatest influence on the global economy; (2) place the gold standard in context with other systems that preceded and followed it; and (3) dispel some enduring misconceptions. The Gold Standard in History The classic gold standard era commenced in the 1870s and ended with the suspension of the gold standard at the outbreak of World War I in 1914. Before this era, the major trading nations of the world relied on silver and gold coins as the basic money stock, supplemented by banknotes that were claims on silver and gold. The monetary standard of silver and gold was called bimetallism. Its chief advantage was that the two metals combined seemed to afford a sufficient supply of money with which to finance the growth of the developed economies. Its chief disadvantage was that it forced the major nations to declare a rate of exchange between the two metals (such as setting 16 ounces of silver equal in value to one ounce of gold), which created an arbitrage opportunity for speculators whenever the market prices of gold and silver diverged from the statutory exchange rate. . . .

Потенциал конкурентоспособности фунта стерлингов в посткризисном мире

The author discusses the factors and trends that determine the British pound’s competitive position in various segments of the international monetary system. Despite the devaluation effect caused by Brexit, the pound is still the most expensive of the key international currencies. On the one hand, this is due to the fact that the ratio of the British pound monetary aggregate M1 to GDP is significantly lower than that of other major economies – issuers of reserve currencies. Thus, the pound has the lowest monetary risk of depreciation compared to other currencies. On the other hand, the international significance of the pound sterling is explained by the ability of British economy to service the huge external debt, which in relative size is the largest among the leading economies of the world. This state of affairs is achieved due to the fact that London is home to the largest number of foreign companies in the world that carry out operations in various Eurocurrencies, acting simultaneously as the main issuers of external debt obligations. The attractiveness of the pound sterling as the currency for the nomination of international debt instruments is due to the less risky currency profile of the pound sterling, as well as the relatively higher profitability of debt instruments. After the global financial crisis, the share of the pound in the official reserves of other countries and in the implementation of international payments is gradually increasing. The author comes to the conclusion about the possible strengthening of the future role of the pound as a stabilizer of international economic relations against the backdrop of an increase in unpredictable events taking place on both sides of the Atlantic such as fiscal crisis of the euro area, Brexit, the growing political tension in the USA, COVID 19. These events are increasingly threatening leading positions of the US dollar and the euro as the key international currencies.

Harry Johnson's "case for flexible exchange rates"—50 years later

Fifty years ago, Harry G. Johnson published “The Case for Flexible Exchange Rates, 1969,” its title echoing Milton Friedman’s classic essay of 1953. Though somewhat overlooked today, Johnson’s reprise was an important element in the late 1960s debate over the future of the international monetary system. The present paper has three objectives. The first is to lay out the historical context in which Johnson’s “Case” was written and read. The second is to examine Johnson’s main points and see how they stand up to nearly five decades of experience with floating exchange rates since the end of the Bretton Woods system. The third is to review the most recent academic critiques of exchange rate flexibility and ask how fatal they are to Johnson’s basic argument. I conclude that the essential case for exchange rate flexibility still stands strong.

Foreign Currency as a Barrier to Trade: Evidence from Brazil

I study the role of foreign currency risk in affecting export behavior. The dominant role of the United States Dollar in the international payments system exposes many emerging market firms to exchange rate risk in international trade due to unexpected movements in prices paid in local currency. In 2008, Brazil and Argentina agreed to a “Local Currency Payments” (SML) system, which allowed exporters and importers to operate in their own local currencies. This system was responsible for nearly 10% of exports from Brazil to Argentina by 2012. I estimate the effect of eliminating foreign currency risk via the SML system by leveraging plausibly exogenous municipal variation in access to authorized financial institutions. Using a triple difference design, I find that municipalities with high access to the SML system exported 22% more to Argentina relative to other South American export destinations compared to municipalities with low access. Applying estimates of the trade elasticity from the literature, this effect is equivalent to reducing trade barriers by approximately 10%. I complement this finding with a firm-level analysis using confidential customs data. Export transactions through the SML system were on average 44% larger than otherwise similar transactions. In a stylized model of export behavior, I discuss these results as stemming from export frictions such as risk aversion or currency fees.

Features of teaching the use of information technologies when obtaining financial services

Problem and goal. In article the complex analysis of the organization of processes of training of users to work with non-cash payment system with use of means of informatization and an assessment of efficiency of the electronic educational resource which is in a special way developed allowing to organize such training is carried out. The aim was to identify the specifics of training the population to use a non-cash payment system for goods and services on the basis of the developed electronic resource, which is to consider the classification of Russian and international payment systems, the experience of their use, the possibilities of information and telecommunication technologies in the organization of such training. This made it possible to design a model of increasing the level of financial literacy, to develop an educational electronic resource, to organize and conduct training built using information technology, as well as to evaluate the effectiveness of the developed educational electronic resource in the formation of financial literacy. Methodology. During the design of a special electronic educational resource, the study of special literature and normative legal acts was carried out. The study was based on the works of A.I. Savelyev, A.V. Pukhov, D. A. Kochergin, V.A. Lopatin, S.V. Krivoruchko, V.M. Ionov, 1. Semenikhin, D. Pominov, V.A. Dadalko, P.A. Tamarov, etc. The study used: the method of direct monitoring of quality testing of the site, which allowed to determine what are the features of the website design, as well as to formulate recommendations for its change (as part of the direct observation, we measured the speed of the respondent’s navigation on the site, the emotional state, as well as a list of sections of interest to respondents to a greater extent), and method of in-depth interview, aimed to assess the compliance of the content of the developed materials with the requirements of the target group of consumers and potential users of the portal. The focus group as a method is not suitable in this study due to the fact that respondents differ too much in age and level of financial literacy. Results. The article presents a detailed analysis of the level of financial literacy of the population of the Russian Federation. The study confirmed the relevance of the problem of low level of financial literacy of the Russian population, as well as the need to develop an information tool to solve this problem. As part of the project, a prototype of the website was developed as an information tool to improve the level of financial literacy of the population. The choice of the website as a tool for effective informatization of financial literacy training was based on the statistics of growth of Internet users, as well as on the choice of the target audience aged 20 to 35 years. Conclusion. Features of informatization of training on the use of non-cash payment system are considered based on the use of a prototype website specifically for current and future users of financial services. This portal is aimed at developing users’ independent skills of comparison and selection of payment systems and e-wallets on the basis of indicators of their financial stability. The functionality of the portal is aimed at finding and mastering by the user the important principles of working with banking products, and to ensure that users of the portal are always aware of the next seminars and events to improve financial literacy in their city of residence.

The Relationship Structure of Global Exchange Rate Based on Network Analysis

The optimal threshold strategy is put forward for establishing a suitable network for analyzing the correlation among the different exchange rates. The 33 currencies of the world’s major countries and regions are analyzed by the method of network analysis, and the multilateral exchange rate correlation network is established based on the optimal threshold. Combining with geographical features and the exchange rate regime, it is found that the international currency has obvious community structure, which is composed of three levels: the core currency area, the arbitrage currency area and the shadow currency area. The conclusion reveals the structural characteristics of the Jamaica international monetary system.

Poder Monetário Estrutural: do padrão ouro ao dólar flexível

Resumo As necessidades de financiamento das guerras no século XVII levaram a Inglaterra a realizar inovações financeiras importantes, que deram lugar à Revolução Financeira. Esse conjunto de mecanismos - dívida pública de longo prazo, banco central e mercados secundários relevantes - permitiram à Grã-Bretanha desempenhar um papel central no sistema financeiro internacional até a 1ª Grande Guerra. Entretanto, esse ganho não proporcionou aos ingleses um poder monetário estrutural, apesar do papel central que seu mercado financeiro e sua moeda tiveram durante o padrão ouro. Diferentemente, os Estados Unidos usaram seu poder monetário estrutural tanto para implantar o regime de taxas fixas de Bretton Woods quanto para rompê-lo e substituí-lo pelo atual sistema monetário e financeiro internacional, baseado do dólar flexível. A crise de 2008 mostra que o poder estrutural americano está intacto e sem competidores potenciais relevantes.

Currency Crises Prediction Using Deep Neural Decision Trees

Currency crises are major events in the international monetary system. They affect the monetary policy of countries and are associated with risks of vulnerability for open economies. Much research has been carried out on the behavior of these events, and models have been developed to predict falls in the value of currencies. However, the limitations of existing models mean further research is required in this area, since the models are still of limited accuracy and have only been developed for emerging countries. This article presents an innovative global model for predicting currency crises. The analysis is geographically differentiated for regions, considering both emerging and developed countries and can accurately estimate future scenarios for currency crises at the global level. It uses a sample of 162 countries making it possible to account for the regional heterogeneity of the warning indicators. The method used was deep neural decision trees (DNDTs), a technique based on decision trees implemented by deep learning neural networks, which was compared with other methodologies widely applied in prediction. Our model has significant potential for the adaptation of macroeconomic policy to the risks derived from falls in the value of currencies, providing tools that help ensure financial stability at the global level.

Chaotic mélange: neo-liberalism and neo-statism in the age of Sino-capitalism

Following the central themes of this special forum, this article aims to move beyond binary debates on how China relates to the hitherto dominant US-led liberal order. The most debated outcomes – slipping into a Thucydides trap versus the resilience of the liberal international order – should be seen as two extreme cases that are unlikely to occur. Much more likely is a period with diminishing global leadership – a Kindleberger trap – and a metamorphosis of the liberal order as neo-liberal economics is increasingly infused with neo-statism. Analytically, I utilize a two-level analysis that traces historical processes at the level of the international political economy as well as the Chinese domestic level. China’s emergent form of capitalism, Sino-capitalism, is conceived of as a multifarious force, both neo-statist and neo-liberal. It combines top-down state-centric modes of governance with bottom-up networked modes of entrepreneurship. By using the internationalization of the Chinese Renminbi (RMB) as a case study, I illustrate the dynamics by which Sino-capitalism impinges on the International Monetary System. Sino-capitalism’s interactions with the liberal order are generating a mélange that joins neo-liberalism’s emphasis on private capital and unfettered market forces with a neo-statist reinsertion of government to manage economies. This mélange is likely to be chaotic as the United States becomes selectively isolationist, while China’s support of the existing order remains half-hearted. The developing chaotic mélange indicates that the global capitalist system could increasingly exhibit disorderly, dysfunctional and even dangerous trends.

THE IMPACT OF THE RENMINBI INTERNATIONALIZATION ON THE GLOBAL MONETARY ORDER

Background and the purpose: The Chinese economy is the fastest growing and changing economy in the modern world. The importance of the renminbi as an international currency is not relevant to China's economic potential and role in the global economy, however, many scientific studies indicate that the position of that currency in the functions of international money will become stronger in the future. This encouraged the author to assess the consequences of the renminbi internationalisation, in particular the impact on the stability of the international monetary system. An additional aim of the paper is to present the possible scenarios for reform of the international monetary system and assess whether the Chinese currency has a chance to become a global currency.&#x0D; Methods: The assessment of the renminbi’s role in global foreign exchange relations was carried out by analysing the use of Chinese currency in the main functions of international money in official sector (reserve currency, intervention currency, anchor currency) and private sector (investment currency, vehicle currency in international trade and on the foreign exchange market, invoicing and quotation currency) using the Cohen matrix. The author also assessed the benefits for the stability of the international monetary system, resulting from the transition from a system based on the dominance of the US dollar to a multi-currency system, including the renminbi. The study included theoretical research (analysis of the literature and research reports) and empirical research (analysis of statistical data).&#x0D; Results and conclusions: The author confirmed the research hypothesis: An increase in the use of renminbi in the functions of international currency will increase the stability of the international monetary system by reducing the dependence of this system on the single currency, which is the US dollar.