Transcript International Insolvency Law Organisational matters

Dr Marek Porzycki
Chair for Economic Policy
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basic concepts
exchange rate regimes
evolution of the international currency system
Special Drawing Rights (SDR)
currency unions
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Currency
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synonym of money
system of monetary units in use in a country or an
area
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Foreign exchange
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foreign currency (in: foreign exchange reserves)
market for trading currencies (in: FX market)
Exchange rate – value (price) of one currency
expressed in another currency
spot and forward exchange rate
buying and selling rate, mid-market rate
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Convertibility
full convertibility – no restrictions on currency trade on
the foreign exchange market. E.g. USD, EUR, PLN
partial convertibility – control on cross-border capital
flows, some restriction on currency conversion. E.g.
CNY, INR
no convertibility – currency conversion is generally
banned, currency is not traded on the FX market. E.g.
Eastern Bloc currencies before 1989, Cuban „national”
peso, North Korean won.
exchange rate movements
appreciation vs. depreciation
devaluation vs. revaluation
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Fixed exchange rate (currency peg)
currency board – currency reserves in the anchor currency need
to cover all local currency cash and reserves held with central
bank (all M0 monetary aggregate). New money in local currency
can be issued only in return for anchor currency.
otherwise the currency peg needs to be maintained by
interventions of the central bank on the foreign exchange market
(more vulnerable)
a further step: dollarization/euroization
Flexible exchange rate – exchange rate results from supply and
demand on the foreign exchange market
hybrid regimes: managed float, pegged float (within a certain
band, e.g. ERM II), crawling peg and other, exchange rate floor or
ceiling
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Constraints on monetary policy resulting from a fixed
exchange rate. Impossibility of maintaining three
features simultaneously:
fixed exchange rate,
free flow of capital
independent monetary policy
Examples:
China (tightly managed float similar to a currency peg,
capital controls, some degree of independence in
monetary policy)
Bulgaria (currency peg, free flow of capital under EU
law, no independent monetary policy)
Poland (floating exchange rate, free flow of capital
under EU law, independent monetary policy)
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‘gold standard’ until WWI – effectively a system of
fixed exchange rates with gold as a measure of
reference
Bretton Woods system (after WWII) – fixed exchange
rates to USD, USD fixed to gold at $35 = 1 oz.
IMF and World Bank
Crisis of the Bretton Woods system and abolishment
of the relation of USD to gold in 1971
Since 1970s – a system of flexible exchange rates,
with several mutual or regional arrangements
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an accounting unit created by the IMF in 1969 to facilitate
management of foreign exchange reserves and international
settlements
represents a claim on currency held as reserves by IMF member
states
value based on a basket of 4 currencies (EUR, USD, JPY, GBP)
allocated by the IMF Board of Governors to IMF Member States
(current total allocation at ca. 204 bn SDRs, average rate 1 SDR =
1,50 USD)
used as reserve asset (relatively minor importance) and unit of
account
a 2009 proposal by Zhou Xiaochuan, chairman of the People’s
Bank of China, to increase the role of SDR as global reserve
currency
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use of the same currency in more than one
country
usually result from a formal arrangement
(treaty) but may also result from de-facto
usage of a currency of another country (see
also  dollarization/euroization)
need for a common monetary policy (see 
optimum currency area), loss of monetary
sovereignty
historical: Latin Monetary Union (1865-1914/1927),
Scandinavian Monetary Union (1873-1914)
 existing:
- West African and Central African CFA Franc zones (CFA
Franc, pegged to EUR)
- East Carribean Currency Union (East Caribbean dollar,
pegged to USD)
- Singapore-Brunei currency interchangeability agreement
- Common Monetary Area, South Africa (South African rand)
- Economic and Monetary Union (euro area) [see  further
courses]
 planned:
- initiative of the Gulf Cooperation Council (Khaleeji)
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Additional (facultative):
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F. Mishkin, The Economics of Money, Banking, and Financial
Markets, Pearson, 10th ed. 2013, p. 506-513
Ch. Proctor, Mann on the Legal Aspect of Money, 7th ed.
2012: Chapter 33, Other Forms of Monetary Organization, pp.
861-891
Zhou Xiaochuan, Reform the International Monetary System,
March 2009,
http://www.pbc.gov.cn/publish/english/956/2009/2009122
9104425550619706/20091229104425550619706_.html