Basic concepts
How did the currency come about? The first form of currency was to barter for things, and at first it was an exchange of shells and animal skins, but later there were more and more things to be exchanged, and animal skins and shells slowly derived the current currency.
How did the exchange rate system come about? The exchange rate system originated between countries**. It has evolved from bartering in ancient times to the purchase of needed goods and services with money today. It has undergone great evolution and long-term reforms to become what it is today. Forex market system. As long as countries continue to pursue balance of payments, maintain monetary policy autonomy, and maintain the free flow and outflow of capital, the foreign exchange rate will continue to change.
Classical gold standard 1821-1914
During this period, the currencies of most countries were directly convertible**, and the first to use this system was the United Kingdom, and many countries began to follow suit.
Banknote system
After the First World War, the world economy grew at an accelerated pace, but the rate of production failed to meet the demand for money. In addition, during the outbreak of the war, many countries stopped converting, making the gold standard useless.
Despite subsequent efforts to restore the system, it was difficult for the exchange rate between the currency and ** at that time to return to the old value, and the exchange rate fluctuated greatly. In 1929, an economic and market crisis occurred in Western countries, which affected the United States and the world. Eventually, it led to worldwide economic chaos and unrest. In order to defuse the crisis, major economies have depreciated their currencies, raised import tariffs, and banned ** exchange to reduce capital outflows. At this time, the gold standard, which had been in use for about a hundred years, was severely undermined.
After the gold standard and the gold exchange standard were destroyed, in order to protect their own interests, countries adopted a series of protection policies and foreign exchange controls, and transformed the system linked to the gold into a paper money system. Can be redeemed for **. Eventually, in 1931, Britain was the first to abandon the system, followed by other countries, and the gold standard collapsed completely. Competition and conflict between countries not only affect economic development, but also undermine trust between countries. As a result, a number of countries adopted a new policy on the basis of this system of paper money - friendly countries and colonies close to them were organized into a currency area. This trend gradually developed into three major currency areas, namely the US dollar, the British pound and the franc.
Bretton Woods system 1944-1977
In July 1944, 44 countries, including the United States, Britain, the Soviet Union, and France, convened the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, with the aim of establishing a new financial system. At the meeting, delegates approved the establishment of two international organizations, the International Monetary Organization (IMO) and the International Bank for Reconstruction and Development (also known as the World Bank). The conference also established a new monetary system, which enhanced the status of the US dollar as an international currency, and became another major choice as an international reserve center in addition to **. The Bretton Woods Agreement was a new system that combined the gold standard with a fixed exchange rate that could be adjusted appropriately. It stipulates that countries should maintain 1 ounce** at $35 and that the exchange rate of each country can only fluctuate within 1%. Unless a country's balance of payments is unbalanced, it can go beyond this range, but only with the approval of the International Monetary Organization.
The main purpose of the International Monetary Organization is to eliminate barriers between countries, promote international monetary cooperation, maintain the stability of exchange rates between countries, and regulate the foreign exchange market. The International Monetary Organization (IMO) has reserves that provide relief assistance to countries experiencing balance-of-payments problems. The role of the International Bank for Reconstruction and Development (IBRD) is to provide short- and long-term loan financing. The United States accumulated a large amount of foreign exchange and ** reserves during the two world wars, becoming a financial power. The status of this powerful country is fully reflected in the international monetary system. **Can only be pegged to the U.S. dollar, while other national currencies are pegged to the U.S. dollar. The exchange rate is set in the US dollar, and the main ** settlement is also settled in US dollars, which is the Bretton Woods system centered on the US dollar.
The Bretton Woods system addressed the shortcomings of various systems in the past, such as international reserve requirements, balance of payments, international **, exchange rate risk, etc., and established a new system through international conferences. For more than 30 years after the two world wars, it has had a tremendous impact on the promotion of international and world economic development. However, with the rapid development of the economy, some new problems have emerged.
Floating exchange rate system
During the Bretton Woods period, the barriers and frictions between countries were reduced, the world economy prospered, and the European and Asian economies recovered from the damage of the war. It was not until 1960 that America's status as an advanced industrial power began to be challenged by West Germany and Japan. Due to the increasing demand and amount of the world's **, and the speed of **production lagging far behind the rapid expansion of the international **, the US dollar, as the main currency, must maintain the stability of the system. Due to the inability of the currency to increase at will to meet the needs of the international market, the liquidity of the currency was insufficient, which eventually triggered the dollar crisis.
At that time, the world began to lose confidence in the dollar, and the entire exchange rate system was shaken and completely collapsed. The U.S. balance of payments deficit has been expanding rapidly for a long time, inflation is serious, the U.S. position as the world economic leader has begun to waver, and the official dollar against the U.S. dollar has begun to decline. Questioning, all of which make it difficult for the dollar to comply with the original exchange rate agreement. The first depreciation of the dollar occurred in August 1971, when Nixon announced the New Economic Policy (NEP) and adjusted the official mechanism of the dollar and the dollar. But the new policy has not been able to improve the US deficit or solve the chaos in the international market. Subsequently, in 1973, the dollar announced a second devaluation. The value of the US dollar continues**. Countries around the world began to come up with countermeasures by changing the original fixed exchange rate system to a free-floating exchange rate.
Floating exchange rate system 1977-present
The floating exchange rate system is the opposite of the "fixed exchange rate system", which refers to the exchange rate of one country's currency against another country's currency in the foreign exchange market according to supply and demand, that is, when there is an oversupply, the exchange rate falls; When demand exceeds supply, the exchange rate rises.
The floating exchange rate system is divided according to the degree of connection between a country's currency and other currencies, and can have three forms, a separate floating exchange rate system, a pegged floating exchange rate system, and a common floating exchange rate system. Free floating: ** The exchange rate between the domestic currency and the foreign currency is determined by the supply and demand conditions in the foreign exchange market, and no measures are taken.
From ancient times to the present, some systems that are not adapted to modern development have been eliminated and evolved. With the increasing volume of foreign exchange transactions, we have entered a rapidly developing financial era. In this era, if you want to master investment and financial management, you must know the underlying logic of financial development, otherwise it will be difficult to align with the world economy with your current understanding.
In the next class, I will talk about the important matters of international electronic trading and foreign exchange market trading, and you must read it carefully and bring your own thinking logic.
This article is not my original, some of it is excerpted from the Internet, and the summary is for reference only.