Chapter 8. International Currency Relations
8.1. International currency relations. The essence and evolution of the world monetary system
The movement of all goods and factors of production between different countries, the functioning of the world market and the movement of capital are mediated by monetary and financial relations. The chapter examines the essence and evolution of the international monetary system, the factors that determine the exchange rate, and their influence on the development of international economic relations.
Currency relations occupy a special place in the system of international economic relations. The conduct of trade and financial transactions between countries led to the formation of currency relations related to the functioning of money in the world economy.
International monetary relations include the totality of social relations that are formed between their participants (individuals and legal entities, states) about the functioning of money (national currencies) in foreign trade payment turnover. With their help, the movement of all goods, services and factors of production between different countries is mediated.
A specific form of organization and regulation of monetary relations is the currency system. There are national, regional and world currency systems.Historically, at first, national currency systems emerged, enshrined in national legislation, taking into account the norms of international law. The national currency system is an integral part of the country's monetary system, but relatively independent and extends beyond national borders. Its features are determined by the degree of development and the state of the economy and foreign economic relations of the country.
Regional and world monetary systems serve the mutual exchange of the results of national economies and are of an international nature.
The regional currency system is a form of organization of currency relations of the states of a certain region, fixed in interstate agreements and in the creation of interstate financial and credit institutions. The most striking example is the European monetary system.
The world currency system (MIF) is a global form of organizing currency relations within the world economy, fixed by multilateral interstate agreements and regulated by international monetary and financial organizations. The nature and stability of its functioning depend on the degree to which its principles correspond to the structure of the world economy, the alignment of forces and the interests of the leading countries. When these conditions change, a periodic crisis of the world monetary system arises, which ends with its collapse and the creation of a new currency system.
As the main functions of the world monetary system can be identified:
- mediation of international economic relations;
- ensuring payment and settlement turnover within the world economy;
- providing the necessary conditions for a normal reproduction process and the uninterrupted sale of manufactured goods;
- the regulation and coordination of the regimes of national monetary systems;
- unification of the principles of currency relations.
The constituent elements of the world monetary system are national and collective reserve currency units; parities of national currencies and their rates; forms of international settlements; conditions of currency convertibility; currency markets; international monetary and credit organizations.
The most important element of the monetary system is the currency. By currency in the broadest sense of the word is understood a commodity that can fulfill the functions of money in the world economy. In a narrow sense, currency is the monetary unit of the state. Depending on its affiliation, the currency is divided into national and foreign. The national currency is the legal tender on the territory of the issuing countries, the foreign currency is the legal tender in the territory of other countries.
The ability to exchange the national currency of a given country with the currency of other countries characterizes the convertibility (convertibility) of the currency. The national currency may be non-convertible, partially convertible and freely convertible.
The non-convertible currency functions only within one country and is not exchanged for other currencies on the world market. Partially convertible is the currency to which currency restrictions apply, which do not allow exchanging it for all foreign currencies. If the possibilities of convertibility for residents are limited - this is the external convertibility of the currency, if for non-residents - internal convertibility. Freely convertible currency (SLE) is unlimited (fully) externally and internally reversible and is used for registration of foreign exchange reserves. SLE are the monetary units of very few economically developed countries. The currency of approximately 20 countries is fully convertible. The majority of economically developed countries have restrictions on foreign exchange operations, and, consequently, their national monetary units are only partially convertible. The same applies to new industrial and developing countries.
In modern conditions, the world monetary system is a rather complex and ramified system. It consists of many interacting national currency systems, as well as international monetary institutions.
The world monetary system formed in the general direction of the formation of the world economy and international economic relations. This formation was completed by the end of the XIX century. During the XX century. a gradual development of the world monetary system took place. This process can be divided into three main stages:
1) Gold standard system;
2) The Bretton Woods currency system;
3) The Jamaican currency system.
Each of these systems corresponded to certain stages of maturity of international economic relations. As the economic conditions changed, the prerequisites for a transition to a new world monetary system were emerging.
1. The system of the gold standard spontaneously developed by the end of the XIX century. The system was based on gold as the main money metal. This system provided for the legislative establishment of the gold content of the national monetary unit, circulation on the domestic market of gold coins, free exchange of all types of money for gold, unrestricted coinage of gold coins, free import and export of gold. Gold performed the function of world money, and therefore, a universal means of payment.
There are the following varieties of the gold standard:
- gold-coin standard-banks made free coinage of gold coins (it operated until the beginning of the 20th century);
- gold-gold standard - gold was used only in international calculations (early XX century - the beginning of the First World War);
- gold standard - along with gold, the currencies of the countries included in the gold standard system (from 1922 to the beginning of the Second World War) were used in calculations.
The advantages of the gold standard were the preservation of stable exchange rates, ensuring the stability of foreign and domestic economic policies, favorable conditions for the development of international trade, and the stability of domestic prices. The disadvantages were the dependence of the money supply in circulation in the world economy on the extraction and production of gold; the impossibility of an independent monetary and credit policy aimed at solving domestic problems of the country.
The gold standard system could function as long as countries had sufficient gold reserves to provide fixed exchange rates. But the rapid development of production required a large number of banknotes, gold was scarce, a growing role was played by credit and paper money.
With the development of international economic relations and the growth of non-cash settlements between countries, there were prerequisites for replacing the system of the gold standard with another, more rational system. This process was accelerated by the Great Depression and World War II. This period was unstable for the global monetary system: many countries devalued their currencies relative to gold to stimulate exports, employment and reduce imports. The crisis turmoil in the currency sphere clearly showed that the world monetary system needs reforming.
2. The Bretton Woods system was adopted by an international conference held in 1944 in the city of Bretton Woods (USA). Its basis was gold and two reserve currencies (US dollar and British pound sterling). The latter was the main role, therefore the Bretton Woods system is also called the gold and currency system, as it allowed the exchange of reserve currencies for gold at a relatively stable but regulated exchange rate.
Two organizations were founded at the Bretton Woods Conference: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), designed to ensure the functioning of the new monetary system.
The main characteristics of the Bretton Woods system are as follows:
- gold continued to fulfill the function of world money;
- reserve currencies were simultaneously used - the US dollar and the British pound sterling;
- a solid ratio of the dollar to gold was established - $ 35 for 1 troy ounce (31.1 g of gold);
- each national monetary unit had a currency parity in gold and dollars;
- the regulation of currency relations was carried out by international monetary and credit organizations - the International Monetary Fund and the International Bank for Reconstruction and Development;
- in case of a violation of the balance of payments, it was permitted to settle them with gold.
In the post-war period, when the principles of the Bretton Woods monetary system were being formed, Britain did not have enough gold reserves to allow the pound sterling to be exchanged for gold, and practically abandoned its function as a currency.
Thus, the Bretton Woods currency system put the dollar in a privileged position, which gave the US economic and political advantages. In practice, the dollar almost monopolically mediated foreign trade settlements. The United States had the right to pay off the balance of payments deficit at its own national currency. At the same time, any other country with a deficit in the balance of payments had to spend gold reserves, reduce domestic consumption, increase exports.
As a result, the US national currency became world money, so the Bretton Woods system is often called the gold-dollar standard system.
By the late 60's. XX century. The Bretton Woods system came into conflict with the growing internationalization of the world economy. The gold-dollar standard regime in practice gradually began to turn into a dollar standard system. Meanwhile, the position of the dollar by this time was noticeably shaken. By the early 70's. The redistribution of gold reserves in favor of Europe occurred in the last century. There were significant problems with international liquidity, as compared with the increase in the volume of international trade, gold production was small.
The US gold reserves were depleted. The reserves of dollars in international reserves exceeded the US gold reserve by several times. The confidence in the dollar as a reserve currency began to fall and because of the huge deficit in the US balance of payments. New financial centers (Western Europe and Japan) were formed, which led to the loss of the USA's dominant position in the world.
In 1971, the dollar was exchanged for gold at the official price, and the Bretton Woods system actually collapsed. The price of gold on world markets jumped sharply. It was impossible to keep the system of fixed exchange rates.
3. The structure of the modern world monetary system was officially determined in 1976 at a meeting of IMF representatives in Kingston (Jamaica) in the form of the Jamaican currency system.
The transition to a new currency system assumed three main goals: equalizing the inflation rate in different countries, balancing the balance of payments, expanding the possibilities for conducting independent domestic monetary policy by individual countries.
The Jamaican currency system is based on the following principles:
- demonetization of gold - loss of monetary functions;
- the prohibition of gold parities - the pegging of currencies to gold;
- the cancellation of the official reserve currency - this role could be performed by any currency;
- using as reserve funds international settlement units - special drawing rights (SDRs) issued by the IMF;
- an independent choice by countries of the exchange rate regime. Thus, the regime of floating exchange rates was legalized, to which countries actually passed by 1973.
The IMF is called upon to strengthen interstate currency regulation, ensure closer cooperation among member countries, liberalize foreign exchange relations by abolishing foreign exchange restrictions in order to achieve monetary stabilization in the world.
The Jamaican currency system is more flexible than the Bretton Woods, has adapted to the instability of balance of payments and exchange rates and the new alignment of forces in the world. At the same time, its functioning raises a number of complex problems related to the ineffectiveness of the SDR standard, the contradiction between the legal demonetization of gold and the actual preservation of its status as extraordinary world money, the imperfection of the regime of floating exchange rates, etc. The search for ways to improve the Jamaican monetary system these problems, strengthening the coordination of the monetary and economic policies of the world's leading centers and stabilizing the world currency mechanism.
The instability of the Jamaican currency system led to the creation by European countries of its currency system.
In March 1979, a regional European currency system (EMS) was established in Western Europe. The purpose of the EBU is to stimulate integration processes, create a European political, economic and monetary union - the European Union, strengthen the position of Western Europe.
Features of the EMS, which distinguish it from the Jamaican currency system, are as follows:
- instead of the SDR, we have introduced our own European currency unit for the cooperation of the EMU-ECU member countries (since 1999 -Euro)
- the regime of joint floating of exchange rates of the countries participating in the EMU provides for limits of their mutual fluctuations (± 15% of the central rate). Such a regime of collective floating of currencies is called the "European currency snake". If the exchange rate is outside the permissible limits, the central bank is obliged to implement foreign exchange interventions;
- EBU member countries, in contrast to the IMF, set up their own body for interstate currency regulation-the European Currency Cooperation Fund, replaced in 1994 by the European Monetary Institute, and in 1998 by the European Central Bank System (ESCB).
EMU is more stable than Jamaica, as fluctuations in exchange rates are smaller. Its achievements are determined by the following factors: the development of economic and monetary integration, the transfer of a part of sovereign rights to supranational bodies, the orientation towards specific programs, the flexibility in choosing directions and methods for regulating currency relations, the development of a mechanism for making and implementing decisions.
However, the EBU also experiences difficulties in connection with the contradictions of the participating countries. A number of its problems are caused by different levels and rates of development of the economy, inflation, unemployment, the state of the balance of payments, the gold and currency reserves of the member countries. A number of countries (Ireland, Greece, Portugal, etc.) demand an increase in subsidies from the EU's general budget for tightening their backward areas in the framework of regional policies. External factors (especially fluctuations in the dollar rate) also complicate the functioning of the EMS.
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