Exam 29: The International Monetary System: Past, Present, and Future

Proposals to alter the international monetary system have included (1) a return to the international gold standard, and (2) establishing a single world currency under the control of an international central bank. How would the adoption of each of these plans affect the ability of any given country to carry out independent monetary and fiscal policy? Explain.

In its lending to member countries, the International Monetary Fund (IMF)

The event that essentially led to the end of the Bretton Woods system was

SDRs were first introduced as a means of strengthening the Bretton Woods system. If the Bretton Woods system had not collapsed soon after the introduction of SDRs, how (if at all) could SDRs have potentially contributed to alleviating the liquidity problem? The confidence problem? The adjustment problem? Why do you suppose that, since their introduction, SDRs have remained such a small fraction of international reserves? Explain.

Because different inflation/unemployment trade-offs can make it very difficult for a fixed-rate system to be maintained, how could the creators of the Bretton Woods system have thought that that system would provide for some autonomy in domestic macroeconomic policy? Explain.

Some economists doubt whether the Bretton Woods system could have survived the OPEC and primary product price "shocks" of the mid-1970s and the subsequent stagflation period. What reasons could be used to support this position? Would a gold standard have performed 'better" or "worse" than the Bretton Woods system during this time? Explain.

In the current exchange rate arrangements of IMF members,

Under the international monetary system as it actually operated between 1947 and 1971, the emergence of seemingly chronic deficits and surpluses in various countries' balance- of- payments positions (i.e., deficits and surpluses which did not seem to get eliminated) was called