Group 1: The History of International Monetary Systems

Summary

This video explores the evolution of international monetary systems, from the bimetallism standard of the 19th century to the Bretton Woods system and beyond. It discusses how the gold standard influenced global economies and the shift to the US dollar as the international standard after World War I. The script also covers the challenges faced by the gold standard, the impact of World War II on the US dollar, and the emergence of the European monetary system. It concludes by reflecting on the current state of currency comparison and the improbability of a return to bimetallism.

Takeaways

• 💰 The bimetallism standard (1803-1873) defined national monetary units using fixed quantities of gold and silver.
• 🇫🇷 France, along with Belgium, Italy, and Switzerland, formed the Latin Monetary Union in 1865 to standardize the bimetallism system.
• ⚖️ Bimetallism provided price stability and greater monetary reserves by allowing the use of both gold and silver, but it was costly to maintain.
• ⚒️ Gold became the next standard after bimetallism ended, with the UK adopting the gold standard in 1821, attracting other countries to follow.
• 💸 The gold standard limited government control over paper currency, ensuring fixed exchange rates but lacking flexibility in the money supply.
• 📉 The gold standard collapsed after World War I due to economic instability, leading to the rise of the US dollar as the dominant international currency.
• 🌍 The Bretton Woods system (1944) established rules for global financial relations, tying currencies to the US dollar, which was backed by gold.
• 💡 In 1971, the US terminated the dollar’s convertibility to gold, ending the Bretton Woods system and introducing fiat currencies.
• 📉 The Smithsonian Agreement failed to maintain stable exchange rates, leading to the free-floating of major currencies in the 1970s.
• 🔁 Economists in the 2000s described a new global system where high-saving Asian countries lend to high-spending Western countries, resembling a modern Bretton Woods system.

Q & A

What is the bimetallism standard, and when was it used?

The bimetallism standard was a monetary system that defined a nation's currency in terms of fixed quantities of gold and silver. It was used between 1803 and 1873, beginning with France and later adopted by other European countries.

What was the purpose of the Latin Monetary Union formed in 1865?

The Latin Monetary Union, formed by France, Belgium, Italy, and Switzerland in 1865, aimed to implement the bimetallism standard on a global scale to stabilize exchange rates and ensure the free use and coinage of gold and silver.

Why was the bimetallism standard eventually replaced by the gold standard?

The bimetallism standard was replaced by the gold standard because managing the supply and coinage of both gold and silver became costly, and the fixed price ratio between the metals caused disruptions. The international monetary conference in 1867 decided to adopt the gold standard for better stability.

How did the gold standard function, and which country adopted it first?

The gold standard tied a country’s currency value directly to a specific amount of gold. The UK was the first to adopt this standard in 1821, which later attracted other countries, particularly after the Franco-German war and new gold discoveries.

What were the key advantages and disadvantages of the gold standard?

The advantages of the gold standard included fixed exchange rates, reduced inflation risk, and more certainty in international trade. However, its inflexibility in money supply and inability to protect countries from global inflation or economic crises led to its eventual decline.

What was the impact of the Great Depression on the gold standard?

During the Great Depression (1929-1939), the global economy suffered from deflation, unemployment, and falling production. These economic pressures led to the abandonment of the gold standard, with countries like Britain and the US moving away from it in the early 1930s.

What role did the US dollar play after the gold standard collapsed?

After the collapse of the gold standard, the US dollar became the dominant global currency. The US monetized its gold reserves, and the dollar emerged as the new international standard during the 1920s and post-World War I era.

What was the Bretton Woods system, and when was it established?

The Bretton Woods system was a monetary framework established in 1944 to manage international financial relations. It tied currencies to the US dollar, which was backed by gold, and aimed to provide stability in exchange rates and international trade.

What led to the collapse of the Bretton Woods system?

The Bretton Woods system collapsed in 1971 when the US terminated the convertibility of the dollar into gold, making the dollar a fiat currency. This was driven by global economic imbalances and inflationary pressures.

How did the European Monetary System (EMS) evolve, and what was its purpose?

The European Monetary System, led by France and Germany in 1979, aimed to reduce exchange rate fluctuations and maintain currency stability in Europe. It established capital controls and allowed participating countries to follow Germany's low-inflation policies.

Outlines

00:00

🏦 International Monetary Systems: Bimetallism and Gold Standard

The script begins by discussing the historical context of international monetary systems, focusing on the bimetallism standard that was established from 1803 to 1873. This system allowed for a nation's monetary unit to be defined in terms of fixed quantities of gold and silver. The script highlights the problem of differing exchange rates between countries and the formation of the Latin Monetary Union in 1865 to address this issue. It then transitions to the gold standard, which emerged after the decline of bimetallism, with gold becoming the primary standard for international trade and currency valuation. The gold standard provided stability but was limited in its flexibility to supply money, which contributed to its eventual fall during World War I.

05:01

📉 The Great Depression and the Bretton Woods System

Paragraph 2 delves into the economic turmoil following World War I, leading to the Great Depression of the 1930s. It discusses the shift from the gold standard to the dollar standard, with the US dollar becoming the new international currency. The Bretton Woods system, established in 1944, aimed to regulate international monetary relations by pegging currencies to the US dollar, which was in turn convertible to gold. However, this system faced challenges and was terminated in 1971 when the US ended the convertibility of the dollar to gold. The paragraph also covers the floating exchange rates of the 1970s and the Plaza Accord of 1985, which aimed to stabilize the US dollar's value.

10:01

🎵 The Emergence of Modern Monetary Interdependencies

The final paragraph, indicated by the presence of a music symbol, likely introduces a new section or conclusion to the script. It briefly mentions the emergence of a new international monetary system characterized by interdependencies among states, particularly between high-saving Asian countries and high-spending Western countries. This system involves currency pegging and government interventions to manage currency values, which has been a topic of economic discussion and debate. The paragraph concludes by suggesting that a return to bimetallism is unlikely in the modern era.

Keywords

💡Bimetallism Standard

The Bimetallic Standard was an international monetary system where a nation's monetary unit was defined in terms of fixed quantities of both gold and silver. It was significant for providing a dual metal basis for currency, offering greater monetary reserves and price stability. The script mentions that this system was used from 1803 until 1873, highlighting its historical importance in the evolution of international monetary systems.

💡Latent Monetary Union

The Latent Monetary Union was formed in 1865 by France, Belgium, Italy, and Switzerland to attempt a worldwide implementation of the Bimetallic Standard. It aimed to standardize exchange rates and monetary policies among member countries, showcasing an early effort at international economic cooperation. The script discusses how this union was an attempt to overcome the classical problem of differing exchange rates among countries using bimetallism.

💡Gold Standard

The Gold Standard is a monetary system where a country's currency or paper money has a value directly linked to gold. It replaced the Bimetallic Standard and was characterized by gold coins circulating as domestic currency. The script explains how the Gold Standard provided fixed exchange rates and limited the power of governments to issue paper currency, thus preventing inflation.

💡Franco-German War

The Franco-German War, occurring in 1870, is mentioned in the script as a significant event that led to the end of the Bimetallic Standard and the rise of the Gold Standard. Germany's victory and the subsequent extraction of reparations from France facilitated its move to the Gold Standard, influencing other countries to follow suit.

💡Anchored Dollar Standard

The Anchored Dollar Standard refers to a period after World War I where the US dollar became the primary reserve currency due to the US's strong economic position. The script describes how the US dollar's stability and the country's economic dominance made it the new international standard, leading to a shift in global monetary dynamics.

💡Bretton Woods System

The Bretton Woods System was established in 1944 and represented a major international monetary agreement that set the rules for commercial and financial relations among major world economies. The script highlights the system's key features, such as fixing exchange rates and the role of the IMF in bridging balance of payments, and its eventual termination in 1971.

💡Fiat Currency

A Fiat Currency is a type of currency that a government has declared to be legal tender, but it is not backed by a physical commodity like gold or silver. The script notes the transition to fiat currencies, particularly the US dollar, after the termination of the Bretton Woods System, marking a significant shift in global monetary policy.

💡European Monetary System (EMS)

The European Monetary System, established in 1979, was an effort to reduce exchange rate variability and achieve monetary stability within Europe. The script discusses how the EMS allowed for some degree of monetary policy autonomy while maintaining a degree of exchange rate stability, reflecting a regional approach to international monetary cooperation.

💡Plaza Accord

The Plaza Accord of 1985 was an agreement among the US, Japan, Germany, France, and the UK to depreciate the US dollar in relation to the Japanese yen and the German Deutsche Mark. The script mentions this accord as a response to the US dollar's overvaluation, which was harming US competitiveness.

💡Louvre Accord

The Louvre Accord of 1987 was an agreement to stabilize the US dollar after its sharp depreciation following the Plaza Accord. The script describes how this accord was an effort to prevent further falls in the dollar's value and to promote more coordinated exchange rate policies among major economies.

💡Structural Imbalances

Structural Imbalances refer to long-term, deep-seated economic disparities within or between economies, such as chronic trade deficits or surpluses. The script discusses how the supposed new Bretton Woods system faced criticism for structural imbalances, particularly the chronic US current account deficit, indicating the ongoing challenges in achieving sustainable international monetary relations.

Highlights

The bimetallic standard was the first internationally recognized monetary system from 1803 to 1873.

Nations independently set exchange rates within gold and silver, leading to inconsistent international rates.

The Latin Monetary Union in 1865 aimed to implement a worldwide bimetallic system with about 20 nations joining.

Bimetallism provided free market access for gold and silver, offering greater monetary reserves and price stability.

The high cost of mining, handling, and coinage led to the decline of bimetallic standards.

The international monetary conference in 1867 decided to terminate the bimetallic standard in favor of the gold standard.

The gold standard, with gold as the primary currency, emerged after the bimetallic regime's breakup.

The UK's early adoption of the gold standard in 1821 contributed to its economic and political dominance.

Gold discoveries in Western North America made gold more plentiful, influencing many countries to adopt the gold standard.

The gold standard era fixed exchange rates and limited governments' power to issue paper currency, reducing price inflation.

The gold standard's inflexibility in money supply and inability to isolate economies from global economic issues led to its fall.

The Bretton Woods system, established in 1944, set rules for monetary relations among the US, Canada, Western European countries, Australia, and Japan.

The Bretton Woods system required countries to tie their currencies to gold and maintain stable exchange rates.

The US terminated the convertibility of the dollar to gold in 1971, ending the Bretton Woods system and transitioning to a fiat currency.

The Plaza Accord in 1985 was an agreement to depreciate the US dollar to address its overvaluation.

The European Monetary System, established in 1979, aimed to resolve exchange rate instability with a focus on the German mark.

The EMS provided credits to members facing balance of payment issues and promoted a degree of monetary policy autonomy.

Economists have described the emergence of a new international system involving interdependency among states with high savings and spending.

The current international monetary system is characterized by Asian currencies being pegged to the dollar and government interventions to prevent appreciation.

The new Bretton Woods system, called for addressing structural imbalances such as the chronic US current account deficit.

Transcripts

when the removes currencies are compared

to the others how powerful are our

currencies the school actually matter

today we will learn all of those things

by observing the history of

international monetary systems the first

internationally recognized monetary

system was established during 1803 until

1873 namely the bimetallism standard the

standard defined a nation's monetary

unit in terms of fixed quantities of

gold and silver it was used when French

issued a lot of locally used by

mentalism for its economics in 1803 and

then followed by other European

countries in later years however each

nation called independently set its own

rate of exchange within the two metals

this fact left a classical problem in

international use that the resulting

rates often differ wildly from country

to country in order to overcome this

problem French along side with Belgium

Italy and Switzerland formed the latent

monetary union in 1865 as an attempt to

implement the system in a worldwide

scale in the following years about 20

nations has agreed to join the Union

bimetallism provided a free and

unlimited market for gold and super

imposed no restrictions on the use and

coinage of either metal and made all our

money in circulation redeemable in

either gold or silver the system was

preferable to modern mentalism since the

combination of two metals provides

greater monetary reserves and price

stability it is also easier to determine

and establish the exchange rates among

countries using gold silver or

bimetallic standards nevertheless due

process in mining handling and coinage

was costly the amount of demand and

supply of the metals was changed over

time but the ratio of the price between

both metals still the same the condition

could disrupt the double standard

finally the international monetary

conference held in Paris in 1867 decided

to terminate the use of the standard and

replace it with a gold standard the

system gradually came to

and with the franco-german war in 1870

next let's talk about the gold standard

after the breakup of the B mettlesome

regime gold came up as the next standard

of the monetary system gold coins

circulated as domestic currency

alongside coins of other metals and

notes with the composition ferrying by

country in 1821 the UK used this

standard early and enriched economic and

political dominance in the 1870s this

dominance attracted other countries to

enter London's financial markets fast

forward to the end of the franco-german

war Germany extracted reparations from

France to facilitate a move to the gold

standard meanwhile recent gold

discoveries in Western North America had

made gold more plentiful the impact of

these events encourages many countries

to turn into the gold standard during

the gold standard era dermstick

currencies were fairly comfortable in

the gold at a fixed price with no

restrictions the exchange rates between

participating currencies were also fixed

since each currency has a fixed ratio in

terms of gold were over the standard

limited the power of governments to

issue paper currency which could lead to

price inflation it also created

certainty in international trade by

providing a fixed pattern of accents

rates the gold standard may not provide

enough flexibility in the supply of

money due to the in relativity between

the supply of nearly mine gold and the

growing needs of the world economy it

also prohibited any country to isolate

its economy from the inflation or

depression this disadvantages cost the

fall of the system along with the

beginning of World War one in 1914 the

anchored dollar standard during the

World War God flooded the u.s. economics

as a result of ammunition trading with

Europe after the war in 1918 the lack of

gold supplies brought European tough

financial crisis meanwhile the u.s.

monetizes gold which doubled the prices

the US dollar became the only major

currency and the globe

economy turned unstable within the gold

standard which led to the US dollar

becoming the new international standard

this implies that the US economy

expanded rapidly during the 1920s and

even doubled between 1920 and 1929 in

1924 Germany went back to gold in its

stabilization plan to stop its

hyperinflation followed by Britain in

1925 France in 1926 and several other

countries this condition resulted an

excess demand for gold causing deflation

in major global economics meanwhile in

America the stock market reached its

peak in 1929 however production decline

and unemployment at rising wages were

low food prices fell and banks had an

excess of large loans

it cannot be liquidated investors

started to sell their offer priced

stocks which led to the stock market

crash the world faced the Great

Depression during 1929 until 1939

Britain adopted gold in 1931 followed by

the America in 1933 after the following

the dollar surveyed reported monetary

agreement was established in 1936

renting a new kind of the last tender

but the dollar still new currencies and

current gold and all other countries in

the system kept their respective

currencies back to dollar only and

system plotted the remaining 36 the 19th

the Bretton Woods system of monetary

management established the rules for

commercial and financial relations among

the US Canada Western European countries

Australia in Japan after the 1944

Bretton Woods Agreement the Bretton

Woods system was the worst example of a

fully negotiated monetary order intended

to govern monetary relations among

independent states the chief features of

the Bretton Woods system were an

obligation for each country to adopt a

monetary policy that mean then it's

external exchange rates within 1% by

tying its currency to gold and the

ability of the IMF to bridge the broader

in balance of payments also there was a

need to address the lack of cooperation

among other countries and the preferred

calm the devaluation of the currencies

as well on 15 August 1971 the United

States and literally terminated

convertibility of the US dollar to gold

effectively bringing a Brotherhood

system to an end and entering the dollar

a fiat currency at the same time many

fixed currencies such as a pound

sterling also become free-floating

after the collapse of the Smithsonian

agreement the major currencies of North

America Europe and Japan floated during

the nineteen seventies the dollar

depreciated from invasion and then

commenced as dramatic ascend following

the 1979 284 shock when US interest

rates were hike to unprecedented levels

by 85 the dollar strain was harming us

competitiveness prompting the US Japan

Germany France to send a procedure

called under which they join intervene

to lower together and the rate of

vention was so effective that they had

to set another agreement in 1987 the

lower court to stop the further fall of

the dollar prior to these meetings

free-floating actions read what I

consider the best but thereafter the

major countries began to cooperate more

minute exchange rate the European

monetary system or AMS was guided by

France and Germany in 1979 to resolve

these deficiencies participating

currencies were still hot within their

bladder margins of 2.5 percent but are

now humbly the capital controls to allow

a degree of Madrid policy autonomy more

importantly a new entity the European

monetary fund was established to provide

credits known as Equis the members

experiencing balance of payment problems

in practice the EMS was a douche mark

Center system with German mother policy

serving as the nominal income

other countries reduce their inflation

for Germany's which was the lowest in

Europe and this time now the

participants had to withdraw and further

the degree of access rate stability was

achieved and particularly after 1985

from 2004 economists such as Michael be

duly Peter M Garber and David Falk and

slando

began writing papers describing the

emergence of a new international system

involving an interdependency within

states with generally high savings in

Asia landing and exporting to western

states with generally high spending

similar to the origin of Bretton Woods

this included Asian currencies being

pack to the dollar tourist and by the

unilateral intervention of Asian

governments in a currency market to stop

their currencies appreciating the

developing world as a world stock

running current account deficits in 1999

widely seen as a response to

unsympathetic treatment following the

1997 Asian financial crisis from 2004

this supposed new Bretton Woods was

called for the elimination of the

structural imbalances that underlie it

mainly the chronic u.s. current account

deficit in conclusion while most of us

compare our currencies to desert there

is no way we're going back to

bimetallism unless you want to go back

to the 18th century

[Music]