国际金融学课件：Chapter 6 Exchange-Rate Systems and currency crises

1、EXCHANGE-RATE SYSTEMS AND CURRENCY CRISES CHAPTER 6 Main contentExchange-rate practicesChoosing an exchange rate system: influencing factors Fixed exchange-rate systemFloating exchange-rate systemManaged floating rates The Crawling pegCurrency crises and capital controls2Exchange-Rate PracticesFloat

2、ing exchange-rate systemDetermined by market forcesFloat independentlyFloat in unison with a group of other currenciesCrawl according to a predetermined formula3Exchange-Rate PracticesPegged exchange-rate systemFixed against some standard of valueAnchor to a single currencyAnchor to a basket of curr

3、enciesAnchor to gold not used since 19714Exchange-Rate PracticesMembers of the IMFExchange rates should not be manipulatedTo prevent effective balance-of-payments adjustments To gain unfair competitive advantage over other membersMembers should act to counter short-term disorderly conditions in exch

4、ange marketsWhen members intervene in exchange marketsTake into account the interests of other members56Exchange-rate arrangements of IMF members, 2008TABLE 6.17Choosing an exchange-rate systemTABLE 6.2Choosing an Exchange Rate System: Constraints Imposed by Free Capital FlowsAllowing free capital f

5、lows Constrains a countrys Choice of an exchange-rate systemAbility to operate an independent monetary policyImpossible trinity A country can maintain only two of the following three policies:Free capital flowsA fixed exchange rateAn independent monetary policy8Countries can adopt only two of the fo

6、llowing three policies: free capital flows, a fixed exchange rate, and an independent monetary policy.9FIGURE 6.1Fixed Exchange-Rate SystemFixed exchange rates Used primarily by small, developing nationsCurrencies are anchored to a key currencyKey currencyWidely traded on world money marketsDemonstr

7、ated relatively stable values over timeWidely accepted as a means of international settlement1011Key currencies: currency composition of official foreign exchange reserves of the member countries of the international monetary fund, 2008TABLEUSD 65%EUR 26%GBP 5%JPY 3%Data sources: SAFE (State Adminis

8、tration of Foreign Exchange)12Key currencies: currency composition of official foreign exchange reserves of the member countries, 2010Fixed Exchange-Rate SystemAnchoring to a single currencyDeveloping nations whose trade and financial relations are mainly with a single industrial-country partnerAnch

9、oring to the special drawing right (SDR)A basket of currencies established by the IMF13Fixed Exchange-Rate SystemAnchoring to a basket of currenciesDeveloping nations with more than one major trading partnerCurrency basketPrescribed quantities of foreign currenciesIn proportion to the amount of trad

10、e done 14Fixed Exchange-Rate SystemPar value In terms of gold or other key currenciesOfficial exchange rateCan be determined by comparing the par values of two currencies Exchange-stabilization fundTo defend the official rate Through purchases and sales of foreign currencies15To defend the official

11、exchange rate of $2.80 per pound, the central bank must supply all of the nations currency that is demanded at the official rate and demand all of the nations currency that is supplied to it at the official rate. To prevent a dollar depreciation, the central bank must purchase the excess supply of d

12、ollars with an equivalent amount of pounds. To prevent a dollar appreciation, the central bank must purchase the excess supply of pounds with an equivalent amount of dollars.16Exchange-rate stabilization under a fixed exchange-rate systemFIGURE 6.2Fixed Exchange-Rate SystemFundamental disequilibrium

13、 Long term, the official exchange rate and the market exchange rate may move apartReflecting changes in fundamental economic conditionsIncome levels, tastes and preferencesTechnological factorsCost of defending the existing official rate may become prohibitive17Fixed Exchange-Rate SystemBalance-of-p

14、ayments equilibrium By devaluing or revaluing its currencyCurrency devaluationTo cause the home currencys exchange value to depreciateCounteracting a payments deficitCurrency revaluationTo cause the home currencys exchange value to appreciateCounteracting a payments surplus18Fixed Exchange-Rate Syst

15、emDevaluation and revaluationLegal redefinition of a currencys par value under a system of fixed exchange ratesDepreciation and appreciationActual impact on the market exchange rate caused by A redefinition of a par valueChanges in an exchange rateChanges in the supply of or demand for foreign excha

16、nge1920Advantages and disadvantages of fixed exchange rates and floating exchange ratesTABLE 6.4Advantages DisadvantagesFixed exchange rates Floating exchange rates Simplicity and clarity of exchange-rate target Automatic rule for the conduct of monetary policyKeeps inflation under controlContinuous

17、 adjustment in the balance of paymentsOperate under simplified institutional arrangementsAllow governments to set independent monetary and fiscal policiesLoss of independent monetary policyVulnerable to speculative attacksConducive to price inflationDisorderly exchange markets can disrupt trade and

18、investment patternsEncourage reckless financial policies on the part of governmentFixed Exchange-Rate SystemBretton Woods system, 1946-1973Semi-fixed exchange-rate systemAdjustable pegged exchange rates Currencies were tied to each otherProvide stable exchange rates for commercial and financial tran

19、sactionsA nation could repeg its exchange rate via devaluation or revaluation policiesUse fiscal and monetary policies first to correct payments imbalances21Fixed Exchange-Rate SystemBretton Woods system, 1946-1973Agree to defend existing par valuesCorrect fundamental disequilibrium by repegging the

20、ir currencies Up to 10% without permission from the IMFBy greater than 10% with the funds permissionPar value set in terms of gold Or gold content of the U.S. dollar in 1944Market exchange rates were almost but not completely fixed22Fixed Exchange-Rate SystemOperational problems of the Bretton Woods

21、 systemAdjustments in prices and incomes often conflicted with domestic-stabilization objectivesCurrency devaluation was considered undesirableFailure of domestic policiesLoss of international prestige23Fixed Exchange-Rate SystemOperational problems of the Bretton Woods systemCurrency revaluations w

22、ere unacceptable to exportersRepegging exchange rates only as a last resort Sizable adjustments Difficult because of adjustable pegged rates Speculators24Is China a currency manipulator?China - manipulates the Yuan Yuan - significantly undervalued relative to the dollarU.S. exports to China more exp

23、ensiveHarms U.S. production and employmentChinese goods cheaper for American consumers more importsHuge trade surplus with the United States Large accumulation of dollar reserves 25Is China a currency manipulator?Little or no connection between the Yuan and the health of U.S. manufacturingTransition

24、 away from manufacturing in the U.S. is a long-term trendGoes far beyond competition from Chinese exportsJobs have been slashed: technological improvements Each worker more productiveU.S. more competitive workersReform its educational system 26Is China a currency manipulator?Good economic rationale

25、for Chinas peg policyEffective monetary anchor for Chinas internal price levelPositive results for the U.S. economyLarge investments in U.S. debt - keep U.S. interest rates low Increase the size of the economyPromotes a lower inflation rate in the United StatesFoster economic stability27Floating Exc

26、hange RatesFloating (flexible) exchange ratesCurrency prices established daily in the foreign-exchange marketWithout restrictions imposed by government policyEquilibrium exchange rateDemand for and supply of the home currencyChanges in the exchange rateCorrect a payments imbalanceShifts in imports a

27、nd exports of goods, services, and short-term capital movements28Under a floating exchange-rate system, continuous changes in currency values restore payments equilibrium at which the quantity supplied and quantity demanded of a currency are equal. Starting at equilibrium point A, an increase in the

28、 demand for francs leads to a depreciation of the dollar against the franc; conversely, a decrease in the demand for francs leads to an appreciation of the dollar against the franc.29Market adjustment under floating exchange ratesFIGURE 6.3Floating Exchange RatesEconomic downturnsLabor unions lobby

29、for import restrictionsTo save jobs for domestic workersImplementation of import restrictionsHelp one industryShift jobs from other industries in the economy to the protected industryNo significant impact on aggregate employmentShort-term employment gains in the protected industry Offset by long-ter

30、m employment losses in other industries30Floating Exchange RatesArguments for floating exchange ratesSimplicityRespond quickly to changing supply and demand conditionsClear the market of shortages or surpluses of a given currencySimplified institutional arrangements that are relatively easy to enact

31、31Floating Exchange RatesArguments for floating exchange ratesContinuous adjustment in the balance of paymentsPartially insulate the home economy from external forcesNations have greater freedom to pursue policies that promote domestic balance32Floating Exchange RatesArguments against floating excha

32、nge ratesAn unregulated market may lead to wide fluctuations in currency valuesDiscourage foreign trade and investmentInflationary biasMonetary authorities may lack financial discipline Greater freedom for domestic financial management33Managed Floating RatesManaged floating systemInformal guideline

33、s established by IMF for coordination of national exchange-rate policiesNations might intervene in the exchange markets to avoid exchange-rate alterations that would weaken their competitive positionConcern that floats over time might lead to disorderly markets with erratic fluctuations in exchange

34、ratesA nation can alter the degree to which it intervenes in the foreign-exchange market34Managed Floating RatesLeaning against the windIntervene to reduce short-term fluctuations in exchange rates Without attempting to adhere to any particular rate over the long termTarget exchange ratesTo reflect

35、long-term economic forces that underlie exchange-rate movements35Managed Floating RatesManaged floating ratesMarket intervention - used to stabilize exchange rates in the short termAllows market forces to determine exchange rates in the long term36Under this system, central bank intervention is used

36、 to stabilize exchange rates in the short term; in the long term, market forces are permitted to determine exchange rates.37Managed floating exchange ratesFIGURE 6.4Managed Floating RatesMonetary policyTo stabilize a currencys exchange valueExpansionary monetary policyIncrease the money supplyTo off

37、set currency appreciationContractionary monetary policyDecrease the money supplyTo offset currency depreciation38In the absence of international policy coordination, stabilizing a currencys exchange value requires a central bank to initiate (a) an expansionary monetary policy to offset an appreciati

38、on of its currency, and (b) a contractionary monetary policy to offset a depreciation of its currency.39Exchange-rate stabilization and monetary policyFIGURE 6.5Managed Floating RatesOfficial foreign-exchange interventionMay be useful when the exchange rate is under speculative attackMay be helpful

39、in coordinating private-sector expectationsSome support for the short-term effectivenessNo support for the long-term intervention40The Crawling PegThe crawling-peg system Small, frequent changes in the par value of its currencyTo correct balance-of-payments disequilibriumThe process of exchange-rate

40、 adjustmentContinuous for all practical purposesUsed by nations with high inflation ratesCombines the flexibility of floating rates with the stability usually associated with fixed rates41Currency CrisesCurrency crisis, speculative attackA weak currency experiences heavy selling pressureSizable loss

41、es in the foreign reserves held by a countrys central bankDepreciating exchange rates in the forward marketWidespread flight out of domestic currency Into foreign currencyInto goods that people think will retain valueCan decrease GDP growth by 6%4243Examples of currency crisesTABLE 6.5Mexico, Decemb

42、er 19941995. Mexicos central bank maintained the value of the peso within a band that depreciated four percent a year against the U.S. dollar. In order to reduce interest rates on its debt, the Mexican government in April 1994 began issuing debt linked to the dollar. The amount of this debt soon exc

43、eeded the central banks falling foreign-exchange reserves. Unrest in the province of Chiapas led to a speculative attack on the peso. Although the government devalued the peso by 15 percent by widening the band, the crisis continued. The government then let the peso float; it depreciated from 3.46 p

44、er dollar before the crisis to more than 7 per dollar. To end the crisis, Mexico received pledges for $49 billion in loans from the U.S. government and the IMF. Mexicos economy suffered a depression and banking problem that led to government rescues.Russia, 1998. The Russian government was paying hi

45、gh interest rates on its short-term debt. Falling prices for oil, a major export, and a weak economy also contributed to speculative attacks against the ruble, which had an official crawling band with the U.S. dollar. Although the IMF approved loans for Russia of about $11 billion and the Russian go

46、vernment widened the band for the ruble by 35 percent, the crisis continued. This crisis led to the floating of the ruble and its depreciation against the dollar by about 20 percent. Russia then went into recession and experienced a burst of inflation. Many banks became insolvent. The government def

47、aulted on its ruble-denominated debt and imposed a moratorium on private-sector payments of foreign debt. 44Examples of currency crisesTABLE 6.5Turkey, 2001. The Turkish lira had an IMF-designed official crawling peg against the U.S. dollar. In November 2000, rumors about a criminal investigation in

48、to ten government-run banks led to a speculative attack on the lira. Interbank interest rates rose to 2,000 percent. The central bank then intervened. Eight banks became insolvent and were taken over by the government. The central banks intervention had violated Turkeys agreement with the IMF, yet t

49、he IMF lent Turkey $10 billion. In February 2001, a public dispute between the president and prime minister caused investors to lose confidence in the stability of Turkeys coalition government. Interbank interest rates rose to 7,500 percent. Thus, the government let the lira float. The lira deprecia

50、ted from 668,000 per dollar before the crisis to 1.6 million per dollar by October 2001. The economy of Turkey stagnated and inflation skyrocketed to 60 percent.Currency CrisesEnd a currency crisis - end the selling pressureDevalue - establish a new exchange rate at a sufficiently depreciated levelA

51、dopt a floating exchange rateImpose restrictions on the ability of people to buy and sell foreign currencyObtain a loan to bolster the foreign reserves of the monetary authorityRestore confidence in existing exchange rate45Currency CrisesSources of currency crisesCurrency speculatorsBudget deficits

52、financed by inflationWeak financial systemsRecently deregulated financial systemsA weak economy Political factorsExternal factorsChoice of an exchange-rate system46Capital ControlsCapital controls, exchange controlsGovernment-imposed barriers To foreign savers investing in domestic assetsTo domestic

53、 savers investing in foreign assets47Capital ControlsCapital controls, exchange controlsAdvantagesGovernment can influence its payments positionRegulating the amount of foreign exchange allocated to imports or capital outflowsGovernment - encourage or discourage certain transactionsDifferent rates f

54、or foreign currency for different purposesCan give domestic monetary and fiscal policies greater freedom in their stabilization roles48Capital ControlsControls on capital outflows problems:Capital outflows may further increase after the controls are implementedResult in evasionProvide government off

55、icials the false sense of security that they do not have to reform their financial systems to ameliorate the crisis49Capital ControlsControls on capital inflows SupportIf speculative capital cannot enter a country, then it cannot suddenly leave and create a crisisProblemsCan prevent funds that would

56、 be used to finance productive investment opportunities from entering Are seldom effective because the private sector finds ways to evade them and move funds into the country50Capital ControlsTaxing foreign-exchange transactions A tax would increase the cost of these transactionsDiscourage massive r

57、esponses to minor changesDampen volatility in exchange ratesDrawbacks:We do not know how much volatility is excessive or irrationalA tax could impose a burden on countries that are quite rationally borrowing overseasWould be difficult to implement51Increasing the Credibility of Fixed Exchange RatesC

58、urrency board Monetary authority that issues notes and coins convertible into a foreign anchor currency at a fixed exchange rateCan operate in place of a central bank or as a parallel issuer alongside an existing central bankTakes over the role of a central bank in strengthening the currency of a de

59、veloping country52Increasing the Credibility of Fixed Exchange RatesCurrency board Has no discretionary(free) powersSole function: to exchange its notes and coins for the anchor at a fixed rateThe government can finance its spending only by taxing or borrowingNot by printing money and thereby creati

60、ng inflation53Increasing the Credibility of Fixed Exchange RatesCurrency board Monetary policy on autopilotWhen the anchor currency flows inThe board issues more domestic currencyInterest rates fallWhen the anchor currency flows outInterest rates rise54Increasing the Credibility of Fixed Exchange Ra