Chapter 7: The International Monetary System and the Balance of Payments
Jamaica Agreement
Agreement (1976) among IMF members to formalize the existing system of floating exchange rates as the new international monetary system
Crawling Pegs
Allowing the peg to change gradually over time.
Special Drawing Rights
Can be used to settle official transactions at the IMF as a means of injecting more liquidity into the international monetary system while reducing the demands placed on the dollar as a reserve currency.
International Finance Corporation
Charged with promoting the development of the private sector in developing countries.
Convertible Currencies
Currencies that could be freely exchanged for other currencies without legal restrictions.
European Monetary System
EU system designed to create a zone of monetary stability in Europe, control inflation, and coordinate exchange rate policies of EU countries.
World Bank
Established in 1945, initial goal was to help finance reconstruction of the war-torn European economies. Then adopted a new mission to build the economies of the world's developing countries.
International Monetary System
Establishes the rules by which countries value and exchange their currencies.
Managed Float
Exchange rates are not determined purely by private sector market forces.
Short-term Foreign Portfolio Investments
Financial instruments with maturities of one year or less.
Brady Plan
Focused on the need to reduce the debts of the troubled countries by writing off parts of the debts or by providing the countries with funds to buy back their loan notes at below face value.
Unilateral Transfers
Gifts between residents of one country and another.
International Development Association
extends loans at low interest rates to poor nations that cannot qualify for loans from the World Bank
Sterling-based Gold Standard
gold standard in which the British pound is commonly used as an alternative means of settlement of transactions
Export of the Services of Capital
income that a country's residents earn from their foreign investments (Germany)
Pegged
linked to a single strong currency
Gold Standard
A monetary system in which paper money and coins are equal to the value of a certain amount of gold.
Triffin Paradox
A problem in which a national currency that is also a reserve currency will eventually run a deficit, leading to lack of confidence in the reserve currency and a financial crisis.
International Monetary Fund
An international organization of 183 countries, established in 1947 with the goal of promoting cooperation and exchange between nations, and to aid the growth of international trade.
Regional Development Banks
Banks whose mission is to promote economic development of poorer nations within the region they serve.
Soft Loans
Loans that bear some significant risk of no being repaid.
Hard Loan Policy
May make a loan only if there is a reasonable expectation that the loan will be repaid.
Current Account Balance
Measures the net balance resulting from merchandise trade, service trade, investment income, and unilateral transfers.
Smithsonian Conference
Meeting held in Washington, DC, in December 1971, during which central bank representatives from the Group of Ten agreed to restore the fixed exchange rate system but with restructured rates of exchange between the major trading currencies.
Flight Capital
Money sent abroad by foreign residents seeking a safe haven for their assets, hidden from the sticky fingers of their home governments.
International Bank for Reconstruction and Development
Official name of the World Bank.
Par Value
Official price in terms of gold.
Exchange Rate Mechanism
Participants pledged to maintain fixed exchange rates among their currencies within a narrow range of 2.25 percent of par value and a floating rate against the U.S. dollar and other currencies.
Adjustable Peg
Pegs themselves could be altered under certain conditions.
Exchange Rate
Price of one currency in terms of a second currency.
International Centre for Settlement of Investment Disputes
Provides arbitration services when disputes arise between foreign investors and sovereign states.
Capital Account
Records capital transactions between residents of one country and those of other countries.
Balance of Payments (BOP) Accounting System
Records international transactions and supplies vital information about the health of a national economy and likely changes in its fiscal and monetary policies.
Official Settlements Balance
Reflects changes in a country's official reserves; essentially, it records the net impact of the central bank's interventions in the foreign-exchange market in support of the local currency.
Louvre Accord
Signaled the commitment of these five countries to stabilizing the dollar's value.
Long-term Foreign Portfolio Investments
Stocks, bonds, and other financial instruments issues by private and public organizations that have maturities greater than one year and that are held for purposes other than control.
Baker Plan
Stressed the importance of debt rescheduling, tight IMF-imposed controls over domestic monetary and fiscal policies, and continued lending to debtor countries in hopes that economic growth would allow them to repay their creditors.
Flexible Exchange Rate System
Supply and demand for a currency determine its price in the world market.
Merchandise import
Tangible product purchased from abroad
Merchandise Export
Tangible product sold abroad
World Bank Group
The International Development Association, The International Finance Corporation, The Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes.
Balance on Merchandise Trade
The difference between a country's exports and imports of goods.
Balance on Services Trade
The difference between a country's exports of services and its imports of services.
Float
The pound's value would be determined by the forces of supply and demand and the Bank of England would no longer redeem British paper currency for gold at par value.
Fixed Exchange Rate System
The price of a given currency does not change relative to each other currency.
Service Import
The purchase by a resident of a service from another country.
Service Export
The sale of a service to a resident of another country.
Multilateral Investment Guarantee Agency
World Bank affiliate that offers political risk insurance to investors in developing countries.
Plaza Accord
agreement made in 1985 among central bankers to allow the U.S. dollar to fall in value.
IMF Conditionality
an agreement to loan IMF funds on the condition that certain government policies are adopted.
Import of the Services of Capital
payments that a country's residents make on capital supplied by foreigners
Beggar-thy-neighbor Policies
the attempt to promote trade surpluses through policies that cause other states to suffer trade deficits