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Flashcards in Exchange rate regimes Deck (5)
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1
Q

What is competitive devaluation?

A

Devaluing currency to improve trade competitiveness. Exports are boosted, battles deflationary pressure and lifts economy.

2
Q

Mechanisms to create competitive devaluations

A

1) FX market intervention (sell home currency to buy foreign currency)
2) Expanding domestic money supply
3) Cutting interest rates
4) Restricting foreign capital inflows

3
Q

5 different regimes

A
1860-1914 Gold standard
1914-45 Interwar
45-71 Bretton Woods
71-97 Floating Era
97-Present Emerging Era
4
Q

Gold standard

A

1) Set currency equal to ounce of gold
2) Convert to gold then another currency
3) Growing global trade
Political: Limited capital mobility
Implication: Trade > Capital influence rates

5
Q

Interwar years

A

1) Currency allowed to fluctuate relative to Gold
2) Didn’t work well - weak currencies sold and strong currencies bought more than proportionate to their strength
3) World Trade did not grow with GDP
Political: Protectionism & Isolationism
Implication: Rising barriers to capital and trade