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国际金融英语学生用全套

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国际金融英语

ENGLISH FOR

INTERNATIONAL FINANCE

顾维勇

GU WEIYONG

SCHOOL OF FOREIGN LANGUAGES NANJING XIAOZHUANG COLLEGE

2008. 02. — 2008. 06.

LESSON 1 The Gold Standard Era, 1870 — 1914

Origins of the Gold Standard

The gold standard had its origin in the use of gold coins as a medium of exchange, unit of account, and store of value. While gold has been used in this way since ancient times, the gold standard as a legal institution dates back to 1819, when the British Parliament passed the Resumption Act. The Resumption Act marks the first adoption of a true gold standard because it simultaneously repealed long-standing restrictions on the export of gold coins and bullion from Britain.

Later in the nineteenth century, Germany, Japan, and other countries also followed suit. The U.S. effectively joined the gold standard in 1879 and institutionalized the dollar-gold link through the U.S. Gold Standard Act of 1900. With Britain's preeminence in international trade and the advanced development of its financial system, London naturally became the center of the international monetary system built on the gold standard.

The Gold Standard Rules

The gold standard regime has conventionally been associated with three rules of the game. The first rule is that in each participating country the price of the domestic currency must be fixed in terms of gold. Since the gold content in one unit of each currency was fixed, exchange rates were also fixed. This was called the mint parity. The second rule is that there must be a free import and export of gold. The third rule is that the surplus country, which is gaining gold, should allow its volume of money to increase while the deficit country, which is losing gold, should allow its volume of money to fall.

The first two rules together ensure that exchange rates between participating countries are fixed within fairly narrow limits. With the price of any two currencies fixed in terms of gold the implied exchange rate between the two currencies is also fixed and any significant deviation from this fixed rate will be rapidly eliminated by arbitrage operations.

The third rule, requiring the volume of money to be linked in each participating country to balance of payments developments, provides an \"automatic\" mechanism of adjustment which ensures that, ultimately, any balance of payments disequilibria will be corrected.

The Automatic Adjustment Mechanism under the Gold Standard

The gold standard contains some powerful automatic mechanisms that contribute to the simultaneous achievement of balance of payments equilibrium by all countries. The most important of these was the price-specie-flow mechanism (precious metals were referred to as \"specie\"). Hume's description of this mechanism has been translated into modern terms. Assume that Britain's current account surplus is greater than its non-reserve capital account deficit. In this case, foreigners' net imports from Britain are not being financed entirely by British loans. The balance must be matched by flows of international reserves that is, of gold — into Britain. The gold inflows into Britain automatically reduce foreign money supplies and

increase Britain's money supply, driving foreign prices downward and British prices upward. As a result, the demand for British goods and services will fall and at the same time the British demand for foreign goods and services will increase. Eventually, reserve movements stop and both countries reach balance of payments equilibrium. The same process also works in reverse, eliminating an initial situation of foreign surplus and British deficit.

However, the response of central banks to gold flows across their borders furnished another potential mechanism to help restore balance of payments equilibrium. Central banks experiencing persistent gold outflows were motivated to contract their domestic asset holdings for the fear of becoming unable to meet their obligation to redeem currency notes. Thus domestic interest rates were pushed up and capital would flow in from abroad. Central banks gaining gold had much weaker incentives to eliminate their own imports of the metal. The main incentive was the greater profitability of interest-bearing domestic assets compared with \"barren\" gold. Central banks that were accumulating gold might be attempted to purchase domestic assets, thereby increasing capital outflows and driving gold abroad. These domestic credit measures, if undertaken by central banks, reinforced the price-specie-flow mechanism in pushing all countries toward balance of payments equilibrium. Because such measures speeded up the movement of countries toward their external balance goals, they increased the efficiency of the automatic adjustment processes inherent in the gold standard.

However, research has shown that countries often reversed the steps mentioned above and sterilized gold flows, that is, sold domestic assets when foreign reserves were rising and bought domestic assets as foreign reserves fell. Government interference with private gold exports also undermined the system. The picture of smooth and automatic balance of payments adjustment before World War I therefore did not always match reality.

Given the prices of currencies fixed in terms of gold, the price levels within gold standard countries did not rise as much between 1870 and 1914 as over the period after World War Ⅱ, but national price levels moved unpredictably over shorter horizons as periods of inflation and deflation followed each other. What is more, the gold standard does not seem to have done much to ensure full employment. A fundamental cause of short term internal instability under the pre-1914 gold standard was the subordination of economic policy to external objectives. Internal policy objectives were only emphasized after World War Ⅰ as a result of the worldwide economic instability of the interwar years, 1918 — 1939. To understand how the post-World War Ⅱ international monetary system tried to reconcile the goals of internal and external balance, we need to examine the economic events of the period between the two world wars.

复数问题：本课中出现了大量的英语复数形式词，需要学习者特加注意。如：reserves,

movements, holdings, flows, outflows, loans等。在金融英语里，也包括其它商务英语的语境下，复数形式是一种常见的语法现象，但它们与通常的复数形式有所不同，它们常常是有所指的，常用来表示“量”，或“金额”、“额”。又如：

单数词与词义 import 进口 export 出口 damage 损坏 loss 灭失 sale 销售 stock 库存（货） reserve 储存 shipment 装船 holding 持有 payment付款复数词与词义 imports 进口量 exports出口量 damages 损坏赔偿金 losses 损失额/金 sales 销售额 stocks 库存量 reserves储量 shipments 装船的货 holdings 持有量 payments 付款额 BACKGROUND KNOWLEDGE

1. gold standard n. A monetary standard under which the basic unit of currency is equal in value to and exchangeable for a specified amount of gold. 金本位制: 一种货币制度，在此制度下，通货基本单位与一定数量的黄金价值相同，并可与之兑换

Gold standard is a monetary system formerly used by many countries, under which the value of the standard unit of currency was by law made equal to a fixed weight of gold of a stated fineness. Thus the rates of exchange between various gold-standard countries remained fixed, which helped international trade, but the system limited the power of the monetary authorities to control the supply of money in fighting inflation and unemployment. Under a full gold-standard system, such as existed in Britain from the 1870s to 1914, gold coin and bullion (bars of gold) could be freely imported and exported; gold coins circulated freely; and the central bank bought and sold gold in any quantity at the fixed price. The system was set up again by 1928 in limited form but it broke down in the 1930s. After the Second World War some countries in Europe agreed to make their currencies freely convertible into gold for international payments only, thus forming a gold standard that was entirely external. Variations of the gold standard are: gold bullion standard; gold exchange standard. 金本位是过去许多国家采用的货币制度，在这种制度下，货币标准单位的价值由法律规定等于固定重量的既定纯度黄金。这样，各个不同的金本位制国家之间的汇率保持固定，有助于国际贸易。但这种制度限制了财政当局控制货币供应数量以抑制通货膨胀及失业的力量。在完全金本位制下，如在19世纪70年代至1914年间的英国，金币和金条/块可以自由输出输入，金币自由流通，中央银行按固定价格收购及出售任何数量的黄金。1928年这一制度以有限的形式重新建立，但在20世纪30年代垮台。二战后，有些欧洲国家同意其货币可以自由兑换黄金，但只限于国际支付。这样就形成了完全对外的金本位。金本位的不同形式有：金块本位制；金汇兑本位制。（杨佑方主编，外贸经济英语用法词典，2002：PP618 — 619）

2. the Resumption Act 纸币收回条例

3. mint parity = mint par of exchange, par rate of exchange: It is the rate of exchange between two

currencies that are on the gold standard, i.e. when the gold value of their standard currency unit has been fixed by law. The rate between any pair of gold standard currencies is always directly related to the amount of gold in a unit of each currency. 铸币平价汇率是两种金本位之间的汇率，即标准货币单位的黄金值已由法律固定时的汇率。任何两种金本位之间的汇率总是直接与每种货币一个单位的金含量有关。

4. balance of payments 国际收支 It is the balance of a national account in which are recorded all the

international dealings resulting in payment of money during certain period. Unlike the balance of trade, which includes only visible dealings (articles of trade, and gold and silver bars and coins), the balance of payments takes note of invisible imports and exports (payments for banking, insurance, transport, and other services), interest payments and movements of capital. The balance is said to be in deficit, adverse, passive or unfavorable if it shows that the country pays or owes more than it receives or is owed; and in surplus, active or favorable if the opposite is true. 国际收支是一个国家记录一定时期内发生支付货币的所有国际交易的账户上的余/差额。与贸易差额不同，贸易差额只包括有形交易（贸易商品、金条银条及硬币），国际收支着重无形进出口（银行、保险、运输及其他服务）、利息支付及资本的流动。如其差额表示一个国家支付与欠人多于收入与人欠，则为逆差。反之则为顺差。

5．currency notes 流通券，国库券 Currency notes are notes issued as money by the British Treasury

during the war of 1914—1918 and after, of two values, £1 and 10s, later amalgamated (1928) with Bank of England notes. 流通券是在1914 — 1918战争期间及战后英国财政部发行作货币使用的票据，有两种面值：1英镑和10先令。之后于1928年与英格兰银行票据合并。[同] Treasury notes. 此文中指“通货券，流通券”，并非特指英国的“流通券”。

EXERCISES

Ⅰ. Translate the following.

1. the international monetary system built on the gold standard 2. participating country

3. significant deviation from this fixed rate 4. automatic mechanism of adjustment

5. achievement of balance of payments equilibrium

6. the response of central banks to gold flows across their borders 7. meet their obligation to redeem currency notes 8. ensure full employment

9. subordination of economic policy to external objectives 10. tried to reconcile the goals of internal and external balance

Ⅱ. Put these paragraphs into Chinese.

1. However, research has shown that countries often reversed the steps mentioned above and

sterilized gold flows, that is, sold domestic assets when foreign reserves were rising and bought domestic assets as foreign reserves fell. Government interference with private gold exports also undermined the system. The picture of smooth and automatic balance of payments adjustment before World War I therefore did not always match reality.

2. The gold standard regime has conventionally been associated with three rules of the game. The

first rule is that in each participating country the price of the domestic currency must be fixed in terms of gold. Since the gold content in one unit of each currency was fixed, exchange rates were also fixed. This was called the mint parity. The second rule is that there must be a free import and export of gold. The third rule is that the surplus country, which is gaining gold, should allow its volume of money to increase while the deficit country, which is losing gold, should allow its volume of money to fall.

3. Central banks experiencing persistent gold outflows were motivated to contract their domestic

asset holdings for the fear of becoming unable to meet their obligation to redeem currency notes. Thus domestic interest rates were pushed up and capital would flow in from abroad. Central banks gaining gold had much weaker incentives to eliminate their own imports of the metal. The main incentive was the greater profitability of interest-bearing domestic assets compared with \"barren\" gold.

4. Given the prices of currencies fixed in terms of gold, the price levels within gold standard countries did not rise as much between 1870 and 1914 as over the period after World War Ⅱ, but national price levels moved unpredictably over shorter horizons as periods of inflation and deflation followed each other.

Ⅲ. Read the passage.

Balance of payments is the total movement of goods, services and financial transactions between one country and the rest of the world; the term commonly used for the record of such movements. In money terms, therefore, the balance of payments is the total of all receipts from abroad, and of all payments to recipients abroad. All receipts and payments of whatever nature are included, whether they be payments and receipts for non-commercial purposes, such as legacies and for pensions; for goods sold or services rendered; for investment purposes; on behalf of government; or of private persons and agencies.

The balance of payments record or account is conventionally divided into the current account,

or payments and receipts for immediate transactions, such as the sale of goods and rendering of services; and the capital account, or the money movements not immediately devoted to trade, such as investment. The current account is subdivided into the merchandise, or visible account (often also termed the trade account), comprising the movement of goods; and the invisible account, comprising

the movement of services, transfers and investment incomes. Services comprise transport, travel, banking insurance, broking and other activities; transfers comprise money movements for the transmission of legacies, pensions and other non-commercial items; investment income consists of the interest, profits and dividends deriving from capital placed abroad.

The capital account is normally divided into long-term and short-term capital, the former

relating to capital employed for investment purposes, the latter to bank advances, trade credit and the like. Long-term capital is again subdivided into direct investment capital, or capital employed for the establishment of commercial premises and industrial plant, and portfolio investment capital, or capital employed for the purchase of bonds and shares.

A balance of payments account will normally resolve the various subordinate accounts into

balances or net receipts and payments, summing these to an overall balance, subject to a balancing item (UK), net errors and omissions, or statistical discrepancy (US), against which the net overflow from or net inflow into the country’s reserves is noted. The balance of payments account is also referred to as the external account of a nation.

(FROM: International Dictionary of Finance P. 18)

FURTHER READING

GOLD STANDARD by Michael D. Bordo

The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. England adopted a de facto （事实上的）gold standard in 1717 after the master of the mint, Sir Isaac Newton, overvalued the silver guinea （几尼：英国的旧金币，等于一镑一先令）and formally adopted the gold standard in 1819. The United States, though formally on a bimetallic (gold and silver金银复本位) standard, switched to gold de facto in 1834 and de jure (权利上的，理上的) in 1900. In 1834 the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard. During that time the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital.

The gold standard broke down during World War I as major belligerents(交战国) resorted to inflationary finance and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Under this standard countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This version broke down in 1931 following Britain's departure from gold in the face of massive gold and capital outflows. In 1933 President

Roosevelt （罗斯福总统） nationalized gold owned by private citizens and abrogated （废除，取消） contracts in which payment was specified in gold.

Between 1946 and 1971 countries operated under the Bretton Woods system. Under this further modification of the gold standard, most countries settled their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks' holdings of dollars for gold at a fixed rate of $35 per ounce. However, persistent U.S. balance-of-payments deficits steadily reduced U.S. gold reserves, reducing confidence in the ability of the United States to redeem its currency in gold. Finally, on August 15, 1971, President Nixon announced that the United States would no longer redeem currency for gold. This was the final step in abandoning the gold standard.

Widespread dissatisfaction with high inflation in the late seventies and early eighties brought renewed interest in the gold standard. Although that interest is not strong today, it strengthens every time inflation moves much above 6 percent. This makes sense. Whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the \"classical gold standard,\" inflation averaged only 0.1 percent per year.

How the Gold Standard Worked

The gold standard was a domestic standard, regulating the quantity and growth rate of a country's money supply. Because new production of gold would add only a small fraction to the accumulated stock, and because the authorities guaranteed free convertibility of gold into non-gold money, the gold standard assured that the money supply and, hence, the price level would not vary much. But periodic surges in the world's gold stock, such as the gold discoveries in Australia and California around 1850, caused price levels to be very unstable in the short run.

The gold standard was also an international standard — determining the value of a country's currency in terms of other countries' currencies. Because adherents to the standard maintained a fixed price for gold, rates of exchange between currencies tied to gold were necessarily fixed.

Because exchange rates were fixed, the gold standard caused price levels around the world to move together. This co-movement occurred mainly through an automatic balance-of-payments adjustment process called the price-specie-flow mechanism. Here is how the mechanism worked: Suppose a technological innovation brought about faster real economic growth in the United States. With the supply of money (gold) essentially fixed in the short run, this caused U.S. prices to fall. Prices of U.S. exports then fell relative to the prices of imports. This caused the British to demand more U.S. exports and Americans to demand fewer imports. A U.S. balance-of-payments surplus was created, causing gold (specie) to flow from the United Kingdom to the United States. The gold inflow increased the U.S. money supply, reversing the initial fall in prices. In the United Kingdom the gold outflow reduced the money supply and, hence, lowered the price level. The net result was balanced prices among countries.

The fixed exchange rate also caused both monetary and nonmonetary (real) shocks to be transmitted via flows of gold and capital between countries. Therefore, a shock in one country affected the domestic

money supply, expenditure, price level, and real income in another country.

An example of a monetary shock was the California gold discovery in 1848. The newly produced gold increased the U.S. money supply, which then raised domestic expenditures, nominal income, and ultimately, the price level. The rise in the domestic price level made U.S. exports more expensive, causing a deficit in the U.S. balance of payments. For America's trading partners the same forces necessarily produced a balance of trade surplus. The U.S. trade deficit was financed by a gold (specie) outflow to its trading partners, reducing the monetary gold stock in the United States. In the trading partners the money supply increased, raising domestic expenditures, nominal incomes, and ultimately, the price level. Depending on the relative share of the U.S. monetary gold stock in the world total, world prices and income rose. Although the initial effect of the gold discovery was to increase real output (because wages and prices did not immediately increase), eventually the full effect was on the price level alone.

For the gold standard to work fully, central banks, where they existed, were supposed to play by the \"rules of the game.\" In other words, they were supposed to raise their discount rates — the interest rate at which the central bank lends money to member banks — to speed a gold inflow, and lower their discount rates to facilitate a gold outflow. Thus, if a country was running a balance-of-payments deficit, the rules of the game required it to allow a gold outflow until the ratio of its price level to that of its principal trading partners was restored to the par exchange rate.

The exemplar of central bank behavior was the Bank of England, which played by the rules over much of the period between 1870 and 1914. Whenever Great Britain faced a balance-of-payments deficit and the Bank of England saw its gold reserves declining, it raised its \"bank rate\" (discount rate). By causing other interest rates in the United Kingdom to rise as well, the rise in the bank rate was supposed to cause holdings of inventories to decrease and other investment expenditures to decrease. These reductions would then cause a reduction in overall domestic spending and a fall in the price level. At the same time, the rise in the bank rate would stem any short-term capital outflow and attract short-term funds from abroad.

Most other countries on the gold standard — notably France and Belgium — did not, however, follow the rules of the game. They never allowed interest rates to rise enough to decrease the domestic price level. Also, many countries frequently broke the rules by \"sterilization\" （冲消干预） — shielding the domestic money supply from external disequilibrium by buying or selling domestic securities. If, for example, France's central bank wished to prevent an inflow of gold from increasing its money supply, it would sell securities for gold, thus reducing the amount of gold circulating.

Yet the central bankers' breaches of the rules must be put in perspective. Although exchange rates in principal countries frequently deviated from par (偏离面值), governments rarely debased their currencies or otherwise manipulated the gold standard to support domestic economic activity. Suspension of convertibility in England (1797 — 1821, 1914 — 1925) and the United States (1862 — 1879) did occur in wartime emergencies. But as promised, convertibility at the original parity （等值） was

resumed after the emergency passed. These resumptions fortified（加强）the credibility of the gold standard rule.

Performance of the Gold Standard

As mentioned, the great virtue of （优点）the gold standard was that it assured long-term price stability. Compare the aforementioned average annual inflation rate of 0.1 percent between 1880 and 1914 with the average of 4.2 percent between 1946 and 1990. (The reason for excluding the period from 1914 to 1946 is that it was neither a period of the classical gold standard nor a period during which governments understood how to manage monetary policy.)

But because economies under the gold standard were so vulnerable （易受攻击的） to real and monetary shocks, prices were highly unstable in the short run. A measure of short-term price instability is the coefficient of variation, which is the ratio of the standard deviation of annual percentage changes in the price level to the average annual percentage change. The higher the coefficient of variation, the greater the short-term instability. For the United States between 1879 and 1913, the coefficient was 17.0, which is quite high. Between 1946 and 1990 it was only 0.8.

Moreover, because the gold standard gives government very little discretion to use monetary policy, economies on the gold standard are less able to avoid or offset either monetary or real shocks. Real output, therefore, is more variable under the gold standard. The coefficient of variation for real output was 3.5 between 1879 and 1913, and only 1.5 between 1946 and 1990. Not coincidentally, since the government could not have discretion over monetary policy, unemployment was higher during the gold standard. It averaged 6.8 percent in the United States between 1879 and 1913 versus 5.6 percent between 1946 and 1990.

Finally, any consideration of the pros and cons （赞成与反对的理由） of the gold standard must include a very large negative: the resource cost of producing gold. Milton Friedman estimated the cost of maintaining a full gold coin standard for the United States in 1960 to be more than 2.5 percent of GNP （Gross National Product 国民生产总值）. In 1990 this cost would have been $137 billion.

Conclusion

Although the last vestiges （痕/遗迹，踪影） of the gold standard disappeared in 1971, its appeal is still strong. Those who oppose giving discretionary （任意的，自由决定的） powers to the central bank are attracted by the simplicity of its basic rule. Others view it as an effective anchor for the world price level. Still others look back longingly to the fixity of exchange rates. However, despite its appeal, many of the conditions which made the gold standard so successful vanished in 1914. In particular, the importance that governments attach to full employment means that they are unlikely to make maintaining the gold standard link and its corollary, long-run price stability, the primary goal of economic policy.

（FROM: http://www.econlib.org/library/Enc/GoldStandard.html ）

NOTE

1. ABOUT THE AUTHOR

Michael D. Bordo is a professor of economics at Rutgers University. From

1981 to 1982, he directed the research staff of the executive director of the U.S. Congressional Gold Commission.

LESSON 2 THE INTER-WAR PERIOD (1918 —1939)

AND THE BRETTON WOODS SYSTEM (1944 — 1973)

Governments effectively suspended the gold standard during World War I and financed part of their massive military expenditures by printing money. Moreover, labor forces and productive capacity had been reduced sharply through war losses. Consequently price levels were very high everywhere at the war's conclusion in 1918. Between 1918 and 1924, exchange rates also fluctuated wildly, and this led to a desire to return to the stability of the gold standard. The U.S. returned to gold in 1919. In 1922, Italy, Britain, France, and Japan agreed on a program calling for a general return to the gold standard and cooperation among central banks in attaining internal and external objectives. In 1925 Britain returned to the gold standard by pegging the pound to gold at the prewar price. To return the pound price of gold to its prewar level, the Bank of England was thus forced to follow contractionary monetary policies that contributed to severe unemployment. British stagflation in the 1920s accelerated London's decline as the world's leading financial center. The United Kingdom had lost a great deal of its competitiveness and attempted to contain its deficits when the balance of payments deficits and inflation were serious. On the other hand, France faced large balance of payments surpluses after the franc was stabilized at a depreciated level in 1926. As short term capital shifted from London to Paris and New York, the United Kingdom was forced in September 1931 to suspend the convertibility of the pound into gold, devalued the pound, and the gold exchange standard came to an end.

The causes of the collapse of the gold exchange standard lied in the lack of an adequate adjustment mechanism, the huge destabilizing capital flows and the outbreak of the Great Depression. This also was a period when nations imposed very high tariffs and other serious import restrictions. According to Nurkse, the interwar experience clearly indicated the prevalence of destabilizing speculation and the instability of flexible exchange rates.

Since a full recovery from the Great Depression of 1929 —1933 did not take place until the onset of World War II, the conditions for a formal reorganization of the international financial order were not present. The depression had provided an environment in which self interested beggar-thy-neighbor policies encouraged competitive devaluation and increased tariff protection — followed the model established earlier by France. Since no long lasting effective devaluations were possible and the great

interruption of world trade eliminated the gains from international trade, such an environment hindered global economic growth: all countries could not simultaneously devalue by raising gold prices, with collective action doing nothing more than devaluing money by causing inflation. When the war replaced the depression, cooperation became impossible. All countries would have been better off in a world with free international trade, provided international cooperation had helped each country preserve its external balance and financial stability without sacrificing internal policy objectives. It was this realization that inspired the blueprint for the post war international monetary system, the Bretton Woods system.

In July 1944 representatives from the United States, the United Kingdom, and 42 other nations meeting at Bretton Woods, New Hampshire, drafted and signed the Articles of Agreement of the International Monetary Fund (IMF). Even as the war continued, the allied countries were looking forward to economic needs of the post-war world, hoping to establish an international monetary system that would foster full employment and price stability while allowing individual countries to attain external balance without imposing restrictions on international trade. Goals and Structure of the IMF

The system devised at Bretton Woods called for fixed exchange rates against the U.S. dollar and unvarying dollar price of gold — $35 per ounce. Member countries held their official international reserves largely in the form of gold or dollar assets and had the right to sell dollars to the Federal Reserve for gold at the official price. The system was thus a gold exchange standard, with dollar as its principal reserve currency. The inter-war experience had convinced governments that full employment was their primary responsibility and floating exchange rates were a cause of speculative instability and were harmful to international trade. The IMF agreement therefore tried to incorporate sufficient flexibility to allow countries to attain external balance in an orderly fashion without sacrificing internal objectives or fixed exchange rates.

Generally, the goals of the IMF were: 1) to promote international monetary cooperation by providing the means for members to consult on international monetary issues; 2) to facilitate the growth of international trade and foster a multilateral system of international payments; 3) to promote exchange-rate stability and seek the elimination of exchange restrictions that disrupt international trade; 4) To establish a system of multilateral payments; and 5) to make short-term financial resources available to member nations on a temporary basis so as to allow them to correct payments disequilibria without resorting to measures that would destroy national prosperity.

Operation of the Bretton Woods System

While the Bretton Woods system allowed flexibility in exchange rates in cases of fundamental disequilibrium, in practice industrial countries were very unwilling to change their par values until they were forced to do so. They thought devaluation was a sign of national weakness and a revaluation would reduce the competitiveness of a country. As a result, from 1950 until August 1971, the United Kingdom devalued only in 1967; France devalued only in 1957 and 1969; West Germany revalued in 1961 and 1969; and the United States, Italy, and Japan never changed their par values. Meanwhile, Canada (defying the IMF rules) had fluctuating exchange rates from 1950 to 1962 and then reinstituted them in 1970. Developing nations, on the other hand, devalued all too often.

The unwillingness of industrial nations to change their par values as a matter of policy when in

fundamental disequilibrium had two significant effects. First, it robbed the Bretton Woods system of most of its flexibility and the mechanism for adjusting balance of payments disequilibria. Second, and related to the first point, the reluctance of industrial nations to change their par value when in fundamental disequilibrium gave rise to huge destabilizing international capital flows by providing an excellent one-way gamble for speculators.

The IMF articles also called for convertibility on current account transaction only because the designers of the Bretton Woods system hoped to facilitate free trade while avoiding the possibility that private capital flows might tighten the external constraints faced by policymakers. The convertibility of the dollar into gold resumed soon after World War II. The major European currencies became convertible for current account purposes in 1958 and formally in 1961. In spite of these restrictions, the post-war era witnessed huge destabilizing capital flows, which became more frequent and more disruptive, culminating in the collapse of the Bretton Woods system in August 1971. Evolution of the Bretton Woods System

Over the years, the Bretton Woods system evolved in several important aspects in response to the world's changing conditions. In 1962, the IMF negotiated the General Arrangements to Borrow up to $6 billion from the so-called \"Group of Ten\" most important industrial nations (the U.S., the United Kingdom, West Germany, Japan, France, Italy, Canada, the Netherlands, Belgium, and Sweden). GAB was renewed and expanded in subsequent years. The resources that the IMF could borrow under GAB have been increasing greatly with time. Starting in the early 1960s, member nations started to negotiate stand-by arrangements, referring to advance permission for future borrowings by the nation in IMF. Nations negotiated these arrangements for defense against anticipated destabilizing hot money flows. National central banks also began to negotiate so-called swap arrangements to exchange each other's currency to be used to intervene in foreign exchange markets to combat hot money flows.

By 1968, the run on gold was of such a scale that at a March meeting in Washington, D.C., a two-tier gold pricing system was established. While the official U.S. price of gold was to remain at $35 per ounce, the private market price of gold was to be allowed to find its own level. These steps were taken to prevent depletion of U.S. gold reserves.

The most significant change introduced into the Bretton Woods system during the 1947 — 1971 period was the creation of Special Drawing Rights (SDRs) to supplement the international reserves of gold, foreign exchange, and the reserve position in the IMF. Sometimes called paper gold, SDRs are accounting entries in the books of the IMF. SDRs are not backed (supported) by gold or any other currency but represent genuine international reserves created by the IMF. SDRs can only be used in dealings among central banks to settle balance of payments deficits and surpluses and not in private commercial dealings. A charge of 1.5 percent (subsequently increased to 5 percent and now based on market rates) was applied on the amount of SDRs allocated to it. The reason for this was to put pressure on both deficit and surplus nations to correct balance of payments disequilibria. The value of SDRs was originally set equal to one U.S. dollar but rose above $1 as a result of the devaluations to the dollar in 1971, and 1973. Starting in 1974, the value of SDRs was tied to a basket of currencies (the U.S. dollar, German mark, Japanese yen, French franc, and British pound). Basket valuation was intended to provide stability for the SDR's value under a system of fluctuating exchange rates, making the SDR more

attractive as an international reserve asset. Because the movements of some currencies could be offset by the movements of other currencies, the value of SDRs in terms of a group of currencies was likely to be relatively stable.

Over the years, membership in the IMF has increased to include most nations of the world. Despite the shortcomings of the Bretton Woods system, the postwar period until 1971 was characterized by world output growing quite rapidly and international trade growing even faster. On the whole, it can be said that the Bretton Woods system served the world community well, especially until the mid 1960s. Collapse of the Bretton Woods System

From 1945 to 1949, the U.S. ran huge balance of payments surpluses with Europe and the extended Marshall Plan aid to European reconstruction. With the economic recovery of European countries more or less complete by 1950, the U.S. balance of payments turned into deficit. The U.S. settled its deficits mostly in dollars. Surplus nations were willing to accept dollars for the reasons: 1) the U.S. stood ready to exchange dollars for gold at the fixed price of $ 35 an ounce; 2) the dollar acted as an international currency to be used to settle international transactions with any other nation; and 3) dollar deposits could earn interest while gold could not.

Furthermore, the sharp increase in capital outflows (FDI in Europe) and the high U.S. inflation rate (connected with the excessive money creation during the Vietnam War period) worsened the U.S. deficits as well. Because of the international currency position of the dollar, the U.S. felt unable to devalue the dollar to correct its balance of payments deficits. Alternative policies were adopted but resulted in very limited success. They included the increase of short-term interest rates to discourage short-term capital outflows, the decrease of the long-term interest rates to stimulate domestic production, interventions in foreign exchange markets, and a number of direct controls over capital outflows. The U.S. also failed to persuade surplus nations to devalue their currencies (e.g. West Germany and Japan). The expectation then became prevalent that the U.S. sooner or later would devalue its currency — the dollar. This led to huge destabilizing capital movements outside dollars and into stronger currencies. On August 15, 1971, the United States responded to a huge trade deficit by making the dollar inconvertible into gold. A 10 percent surcharge was placed on imports, and a program of wage and price controls was introduced. The Bretton Woods system was really dead.

Among the more skeptical holders of dollars was France, which began in 1962 to exchange dollars for gold despite the objection of the United States. Not only were the French doubtful about the future value of the dollar, but they also objected to the prominent role of the United States in the Bretton Woods system. Part of this distaste for a powerful United States was political, and part was based on the seigniorage gains that France believed accrued to the United States by virtue of the U.S. role as the world's banker. Seigniorage is the profit accruing to a nation from issuing the currency or when its currency is used as an international currency. The U.S. paid a high cost for its seigniorage privilege. Not only was it unable to devalue the dollar, but also its use of monetary policy was more constrained than in other nations.

On August 15, 1971, the United States made it clear that it was no longer content to support a system based on the U.S. dollar. The costs of being a reserve currency country were perceived as having begun to exceed any benefits in terms of seigniorage. The 10 largest countries were called together for a meeting at

the Smithsonian Institution in Washington, D.C. As a result of the Smithsonian Agreement, the United States raised the price of gold to $38 per ounce. Each of the other countries in return revalued its currency by an amount of about 10 percent. The dollar devaluation was insufficient to restore stability to the system. U.S. inflation had become a serious problem. By 1973 the dollar was under heavy selling pressure even at its devalued or depreciated rates, and in February 1973, the U.S. was forced to devalue the dollar again by about 10 percent, and the price of gold was raised from $38 to $42.22 per ounce. By the next month most major currencies were floating. This was the unsteady state of the international financial system as it approached the oil crisis in the fall of 1973.

In short, the immediate cause of the collapse of the Bretton Woods system was the huge balance of deficits of the United States in the early 1970s and the inability of the U.S. to devalue the dollar. Thus, the Bretton Woods system lacked an adequate adjustment mechanism that nations would be willing and able to use as a matter of policy. Consequently the U.S. balance of payments deficit persisted and this undermined the confidence in the dollar. Therefore, the fundamental cause of the collapse of the Bretton Woods system is to be found in the interrelated problems of adjustment, liquidity, and confidence.

WORDS AND EXPRESSIONS

hinder synonyms: hamper, impede, obstruct, block, dam, bar

These verbs mean to slow or prevent progress or movement.

To hinder is to hold back, as by delaying: Often the word implies stopping or prevention: 该词经常意味着停止或阻止。

The travelers were hindered by storms throughout their journey. 旅行者们一路上被暴风雨所阻碍。

What is to hinder you from trying? 是什么阻止你尝试？

To hamper is to hinder by or as if by fastening or entangling: Hamper的意思是通过系紧或缠住而妨碍：

A suit and an overcoat hampered the efforts of the accident victim to swim to safety. 套装和大衣阻碍了事故受害者游到安全处的努力。

She was hampered by ill health in building up her business. 她糟糕的健康状况妨碍她建立自己的商行。

To impede is to slow by making action or movement difficult 意思是通过使活动、行动发生困难而延缓发展：

Sentiment and eloquence serve only to impede the pursuit of truth (Macaulay). 感情用事和夸夸其谈只能阻碍对真理的追求”（麦考利）。

Obstruct implies the presence of obstacles that interfere with progress 表示有干扰或阻止前进的障碍的存在：

A building under construction obstructs our view of the mountains. 正建的楼房挡住了我们眺望远山的视线。

One of the mugger's accomplices tried to obstruct the police officer from upholding the law. 抢劫犯的一个同伙企图阻挠警察维护法律。

Block refers to complete obstruction that prevents progress, passage, or action: 表示完全阻挡了进

程、通道或行动：

A huge snowdrift is blocking the entrance to the driveway. 大雪堆阻塞了汽车专用道的入口。 Dam suggests obstruction of the flow, progress, or release of something, such as water or emotion: Dam表示阻止某物的流动、进程或释放（如水或感情）：

dammed the brook to form a swimming pool 挡住小溪来建一个游泳池

bar is to prevent entry or exit or prohibit a course of action阻止进口或出口，或制止行为过程： preserve synonyms: defend protect guard shield safeguard

These verbs mean to make or keep safe from danger, attack, or harm.

Defend implies the taking of measures to repel an attack: defend指“保卫”、“防御”, 应用范围很广, 对象可以是具体的, 也可以是抽象的;

Protect often suggests providing a cover to repel discomfort, injury, or attack: Protect常含有提供安全的方式来驱开不适、伤害或进攻, 常指“保护...以免遭受危险或伤害等”;

Guard suggests keeping watch: Guard含有看守的意思, 指“注意观察、戒备, 以免受可能的攻击或伤害”;

To preserve is to take measures to maintain something in safety指采取措施维护……的安全，指“防护、保存……免被分解或腐烂”;

Shield suggests protection likened to a piece of defensive armor interposed between the threat and the threatened: Shield含有保卫的意思，就象挡在威胁者和受威胁者之间的防御性甲胄，指“保护、保卫...免受惩罚或伤害等”;

Safeguard stresses protection against potential or less imminent danger and often implies preventive action强调保护不遭受潜在的或不那么迫近的危险，常含有防御性行动的意思：The Bill of Rights safeguards our individual liberties.权力法案保护我们的个人自由。 assign synonyms: allot, allocate, apportion, distribute, dispense, divide

These verbs mean to set aside or give out in portions or shares. 这些动词指接比例或份额留出或分发。

Both assign, which applies to an authoritative act, and allot refer to arbitrary distribution, but neither implies equality or fairness of division:含有权威的行为的assign 和 allot 都指任意地分配，但是这两个词都没有分配平等或公平的含意.

To apportion is to divide according to prescribed rules and implies fair distribution: 词apportion 是指根据已定规则划分并含有公平分配的意思：

Allocate usually means to set something apart from a larger quantity, as of money, for a specific purpose or for a particular person or group: Allocate 常常指为了一特定目的，或特殊的一个人或一组人将某一部分从一大的整体中分出来，如钱或任务：

distribute指“将某物分成一定的部分或数量, 通常各份的数量不一定相等, 然后分给某些人或地方”。

dispense指“分配给一群人中每个人应得的份”。 divide指“把整体分为若干部分”。 BACKGROUND KNOWLEDGE

the gold exchange standard An international monetary agreement according to which money consists of

fiat national currencies that can be converted into gold at established price ratios. 金汇兑本位制为

一国际货币协定，根据此协定，各国法定货币可以按照确定的比价兑换成黄金。

It is a limited form of gold standard used from 1925 to 1931 by some of the smaller countries, esp. the group of Scandinavian countries, under which the central bank would exchange the currency of its own country for a fixed amount of the currency of a particular country which was on the gold standard, and not for gold. Gold coins did not circulate, and reserves were held, not of gold but of the particular gold-standard currency chosen.金汇兑本位制是1925年至1931年有些小国，特别是斯堪的那维亚国家集团采用的有限形式金本位制。在此制度下，中央银行用本国货币与另一特定的金本位制国家定量兑换其货币，但不是兑换黄金。金币不流通，储备要保持，但不是黄金储备，而是选定的特定金本位货币储备。

the Great Depression 经济大萧条，指1929 — 1933年由美国股市全面崩溃引发的国际资金流动大

幅减缓、世界各国工业产量锐减而造成的世界性经济危机。

General Arrangements to Borrow (G. A. B., GAB 借款总安排)is the name of a document containing an

agreement made in 1961 by ten countries to provide standby credits extra to those obtainable under the standby arrangements of the International Monetary Fund. Such credits are ready of use in an emergency and they form one of the means by which members of the I. M. F. can be helped if they get into temporary difficulty with their balance of payments. 借款总安排是一个文件的名称，它包括1961年由10个国家签定的一项协议，协议提供国际货币基金组织备用（信贷）安排可以得到的信贷之外的备用信贷，这项信贷准备用于紧急情况，并构成国际货币基金组织成员国在国际收支遇到暂困难时可以得到的援助的手段之一。

Group of Ten was established in Dec. 1961 in Paris by ten relatively rich industrial countries which set up

a credit fund of $6 billion for the member countries to borrow of the IMFO on the condition that the approval of seven member of the Group is obtained and repayment will be made within five years. The ten members are: Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, Germany, the U. K. and U. S. A. They inaugurated Special Drawing Rights. Switzerland, although not a member of the IMF, is a party to the General Arrangements to Borrow, which the G10 countries established to provide additional credit facilities. 十国集团于1961年12月由10相对来说富裕的工业国家在巴黎成立，十国建立一笔60亿美元的信贷基金，供国际货币组织成员国借用，条件是须得到七个集团成员国同意及在五年内归还。十个成员国是比利时、加拿大、法国、意大利、日本、荷兰、瑞典、德国、英国、及美国。它们赋予了特别提款权。瑞士虽然不是国际货币基金成员国，但它是借款总安排的一国，借款总安排是十国集团设立用以提供额外的贷款便利。

hot money n. Money that is moved by its owner quickly from one form of investment to another, as to

take advantage of changing international exchange rates or gain high short-term returns on investments. 游资，（为追求高额利润而流动的）短期投机资金：游资为利用不断变化的国际汇率或获得高额短期投资利润而被所有者迅速从一种投资形式转移到另一种形式的资金。It is the money attracted from abroad by high interest rates or to find a relatively safe place in a time of political trouble. Since it may be quickly transferred elsewhere, it can greatly upset a country’s balance of payments. 以高利率从国外吸收来的资金，或由于在政治动乱时想找安全地点投放的资金，称为游资。因为这种资金可很快转移到其它地方，所以对一个国家的国际收支造成很大混乱。同refugee capital。

special drawing rights n. The standard unit of account used by the International Monetary Fund (IMF).

In 1970 members of the IMF were allocated SDRs in proportion to the quotas of currency that they had subscribed to the fund on its formation. There have since been further allocations. SDRs can be used to settle international trade balance and to repay debts to the IMF itself. On the instructions of the IMF a member country must supply its own currency to another member, in exchange for SDRs, unless it already holds more than three times its original allocation. The value of SDRs was originally expressed in terms of gold, but since 1974 it has been valued in terms of its members’ currencies. SDRs provide a credit facility for IMF members in addition to their existing credit facilities (hence the name); unlike these existing facilities they do not have to be repaid, thus forming a permanent addition to members’ reserves and functioning as an international reserve currency. （Compare European Currency Unit比较“欧洲货币单位”，“欧元”的前身。）. It’s also called “paper gold”. （国际货币基金组织的）特别提款权，国际货币基金使用的标准计算单位。1970年国际货币基金组织成员国按该组织成立时各成员国所交货币配额而得到的相应特别提款权份额。此后有了进一步的分配。特别提款权可以用来稳定国际贸易差额并偿还国际货币基金本身的债务。根据国际货币基金的指示在兑换特别提款权时某成员国必须将其本国的货币提供给另一成员国，如果它已拥有其原始分配额的三倍以上则除外。特别提款权的价值原先是以黄金为单位的，但1974年以来它折算成成员国的货币单位。特别提款权给国际货币基金成员国提供了现有信贷资金以外的信贷资金，因此而得名。与现存的信贷资金不同的是，该资金是不需偿还的，因此它成了对成员国储备的永久性的追加款，具有国际货币储备的功能。也称为paper gold 纸黄金, “币黄金”(即“特别提款权”)

Reserve position in the Fund在国际货币基金储备净额If there is still a balance after deducting the

national currencies held by the Fund and subscriptions receivable of a member country from the quota it paid to the Fund and the loans it obtained from the Fund, it is called the reserve position in the Fund of the member country. 如果从国际货币基金组织会员国交纳的基金份额及该国从基金组织获得的贷款中，减去基金组织持有的该国货币及该国认购部分应收额之后，仍有余额，此余额即为该会员国在国际货币基金储备净额。（亦说“在国际货币基金组织的储备头寸/准备金”。头寸：1、中国旧时指银行钱庄等所拥有的款项。收多付少叫头寸多, 收少付多叫头寸缺, 结算收付差额叫轧头寸,借款弥补差额叫拆头寸。2、[cash，money supply]∶指市场上货币流通数量,即银根。如银根松说头寸松,银根紧也说头寸紧）

basket of currencies: A group of selected currencies used to establish a value for some other unit of

currency. The European Currency Unit’s value is determined by taking a weighted average of a basket of Eropean currencies. 一揽/篮子货币：挑选一组货币用作某种货币的币值。如欧洲货币单位的币值是采用一揽子欧洲货币的加权平均值来确定的。(weighted: Adjusted to reflect value or proportion: 加权的: 经过调整可反映其价值或比例的a weighted average加权平均数) Marshall (Aid) Plan n. Marshall (Aid) Plan consists of economic help given by the U. S. A. mainly to

countries in Europe to help to rebuild their economics after the Second World War. The three-year plan was administered in the U. S. A. by the E. C. A. (European cooperation Administration) and in Europe by the O. E. E. C. (organization for European Economic Cooperation). The help was in the form of money, goods and technical advice and was directed to increasing industrial and agricultureal production rebuilding internal finances and encouraging international trade. 马歇尔（援助）计划是美国主要给与欧洲国家的经济援助，以帮助他们在二战后重建经济。这一计划在美国由欧洲

合作总署（E. C. A.）管理，在欧洲由欧洲经济合作组织（O. E. E. C.）管理。援助形式有货币、商品、技术咨询，作用为增加工农业生产，重建国内财政及促进国际贸易。

FDI：foreign direct investment 外商直接投资，国外直接投资：指一个国内企业在国外建厂或拥有

国外企业资产的所有权。而不是在证券市场上购买国外企业的股份。

The IMF definition of FDI includes as many as 12 different elements, namely: equity capital, reinvested earnings of foreign companies, inter-company debt transactions, short-term and long-term loans, financial leasing, trade credits, grants, bonds, non-cash acquisition of equity, investment made by foreign venture capital investors, earnings data of indirectly held FDI enterprises and control premium, non-competition fee, and so on. 国际货币基金组织对FDI的定义包括多达12个不同要素,即:股本, 外国公司再投资收益,公司间债务交易,短期和中长期贷款、金融租赁、贸易信贷、赠款、债券、非现金收购股权、由外商投资创投投资、间接拥有外国直接投资企业的收益数据投资溢价,非竞争费,等等。

FDI是现代的资本国际化的主要形式之一，按照国际货币基金组织的定义FDI是指：在投

资人以外的国家所经营的企业拥有持续利益的一种投资，其目的在于对该企业的经营管理具有发言权。

跨国公司是FDI的主要形式。到1999年为止，5.3万跨国公司约有3.5万亿美圆资产。且跨国公司的投资主要是在发达国家之间，且基本上分布于日本，美国，欧盟三极之中。日本早前的FDI主要投资于东南亚，80年代后，80%投资于美国，20%投资于欧洲。现在为中国的第三大外资来源国。从1997年亚洲金融危机以来，对外投资趋缓。

关于国际直接投资（FDI）的本质，有的学者强调“经营资源”，尤其是企业的无形资产。例如，日本学者原正行（1992）认为，FDI是企业特殊经营资源在企业内部的国际转移；另一位日本学者小岛清（1987）认为，FDI是以经营管理上的技术性专门知识为核心。有的学者则强调“控制权”，例如A.G.肯伍德和A.L.洛赫德（1992）认为，FDI是指一国的某公司在另一国设立分支机构，或获得该国某企业的控制权。相关国际机构、政府部门与理论界，例如联合国跨国公司与投资司、国际货币基金组织、WTO、美国商务部等，认为国际直接投资与国际间接投资的根本区别在于是否获得被投资企业的控制权，因为FDI所形成的无形资产处于核心地位，而货币资本则处于非常次要的地位，只能进行间接投资，所以，FDI不仅直接参与经营管理，而且其直接目标就是获得被投资企业的控制权。基于此，有学者认为，“FDI是指一国或地区企业通过垄断优势（主要表现为无形资产）的国际转移，获得部分或全部外国企业控制权，以实现最终目标和直接目标高度统一的长期投资行为。”

EXERCISES

Ⅰ. Translate the following.

1． financed part of their massive military expenditures

2． accelerated London's decline as the world's leading financial center 3． be forced to follow contractionary monetary policies 4． to suspend the convertibility of the pound into gold 5． in the lack of an adequate adjustment mechanism

6． allowed flexibility in exchange rates in cases of fundamental disequilibrium

7． witnessed huge destabilizing capital flows 8． started to negotiate stand-by arrangements

9． referring to advance permission for future borrowings by the nation in IMF 10． 11． 12． 13． 14． 15．

be used to intervene in foreign exchange markets to combat hot money flows ran huge balance of payments surpluses with Europe settled its deficits mostly in dollars

led to huge destabilizing capital movements outside dollars and into stronger currencies raised the price of gold to $38 per ounce

under heavy selling pressure even at its devalued or depreciated rates

Ⅱ. Put the following paragraphs into Chinese.

1. They thought a devaluation was a sign of national weakness and a revaluation would reduce the

competitiveness of a country.

2. The unwillingness of industrial nations to change their par values as a matter of policy when in

3. The IMF articles also called for convertibility on current account transaction only because the

designers of the Bretton Woods system hoped to facilitate free trade while avoiding the possibility that private capital flows might tighten the external constraints faced by policymakers.

4. The most significant change introduced into the Bretton Woods system during the 1947 —

1971 period was the creation of Special Drawing Rights (SDRs) to supplement the international reserves of gold, foreign exchange, and the reserve position in the IMF. Sometimes called paper gold, SDRs are accounting entries in the books of the IMF.

5. Alternative policies were adopted but resulted in very limited success. They included the

increase of short-term interest rates to discourage short-term capital outflows, the decrease of the long-term interest rates to stimulate domestic production, interventions in foreign exchange markets, and a number of direct controls over capital outflows.

6. In short, the immediate cause of the collapse of the Bretton Woods system was the huge balance

of deficits of the United States in the early 1970s and the inability of the U.S. to devalue the dollar. Thus, the Bretton Woods system lacked an adequate adjustment mechanism that nations would be willing and able to use as a matter of policy. Consequently the U.S. balance of payments deficit persisted and this undermined the confidence in the dollar. Therefore, the fundamental cause of the collapse of the Bretton Woods system is to be found in the interrelated problems of adjustment, liquidity, and confidence.

Ⅲ. Read the following passage.

The Bretton Woods system of international monetary management established the rules for

commercial and financial relations among the world's major industrial states. The Bretton Woods

system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.

Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.

Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF). These organizations became operational in 1946 after a sufficient number of countries had ratified the agreement.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value — plus or minus one percent — in terms of gold; and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold.

Until the early 1970s, the Bretton Woods system was effective in controlling conflict and in achieving the common goals of the leading states that had created it, especially the United States. Origins

The political bases for the Bretton Woods system are in the confluence of several key conditions: the shared experiences of the Great Depression, the concentration of power in a small number of states, and the presence of a dominant power willing and able to assume a leadership role in global monetary affairs. The Great Depression

A high level of agreement among the powerful on the goals and means of international economic management facilitated the decisions reached by the Bretton Woods Conference. The foundation of that agreement was a shared belief in capitalism. Although the developed countries' governments differed somewhat in the type of capitalism they preferred for their national economies (France, for example, preferred greater planning and state intervention, whereas the United States favored relatively limited state intervention), all relied primarily on market mechanisms and on private ownership.

Thus, it is their similarities rather than their differences that appear most striking. All the participating governments at Bretton Woods agreed that the monetary chaos of the interwar period had yielded several valuable lessons.

The experience of the Great Depression, when proliferation of foreign exchange controls and trade barriers led to economic disaster, was fresh on the minds of public officials. The planners at Bretton Woods hoped to avoid a repeat of the debacle of the 1930s, when foreign exchange controls undermined the international payments system that was the basis for world trade. The \"beggar thy neighbor\" policies of 1930s governments — using currency devaluations to increase the

competitiveness of a country's export products in order to reduce balance of payments deficits—worsened national deflationary spirals, which resulted in plummeting national incomes, shrinking demand, mass unemployment, and an overall decline in world trade. Trade in the 1930s became largely restricted to currency blocs (groups of nations that use an equivalent currency, such as the \"Sterling Area\" of the British Empire). These blocs retarded the international flow of capital and foreign investment opportunities. Although this strategy tended to increase government revenues in the short run, it dramatically worsened the situation in the medium and longer run.

Thus, for the international economy, planners at Bretton Woods all favored a liberal system, one that relied primarily on the market with the minimum of barriers to the flow of private trade and capital. Although they disagreed on the specific implementation of this liberal system, all agreed on an open system.

The rise of governmental intervention

The developed countries also agreed that the liberal international economic system required governmental intervention. In the aftermath of the Great Depression, public management of the economy had emerged as a primary activity of governments in the developed states. Employment, stability, and growth were now important subjects of public policy. In turn, the role of government in the national economy had become associated with the assumption by the state of the responsibility for assuring of its citizens a degree of economic well-being. The welfare state grew out of the Great Depression, which created a popular demand for governmental intervention in the economy, and out of the theoretical contributions of the Keynesian school of economics, which asserted the need for governmental intervention to maintain an adequate level of employment.

At the international level, these ideas evolved from the experience of the 1930s. The priority of national goals, independent national action in the interwar period, and the failure to perceive that those national goals could not be realized without some form of international collaboration resulted in “beggar-thy-neighbor” policies such as high tariffs and competitive devaluations which contributed to economic breakdown, domestic political instability, and international war. To ensure economic stability and political peace, states agreed to cooperate to regulate the international economic system. The pillar of the U.S. vision of the postwar world was free trade. Free trade involved lowering tariffs and among other things a balance of trade favorable to the capitalist system.

Thus, the more developed market economies agreed with the U.S. vision of postwar international economic management, which was to be designed to create and maintain an effective

international monetary system and foster the reduction of barriers to trade and capital flows. The rise of U.S. hegemony

International economic management relied on the dominant power, the United States, to lead the system. The concentration of power facilitated management by confining the number of actors whose agreement was necessary to establish rules, institutions, and procedures and to carry out management within the agreed system.

The United States had emerged from the Second World War with the strongest economy, experiencing rapid industrial growth and capital accumulation. The U.S. had remained untouched by

the ravages of World War II and had built a thriving manufacturing industry and grown wealthy selling weapons and lending money to the other combatants; in fact, U.S. industrial production in 1945 was more than double that of annual production between the prewar years of 1935 and 1939. In contrast, Europe and East Asia were militarily and economically shattered.

As the Bretton Woods Conference convened, the relative advantages of the U.S. economy were undeniable. The U.S. held a majority of investment capital, manufacturing production and exports. In 1945, the U.S. produced half the world's coal, two-thirds of the oil, and more than half of the electricity. The U.S. was able to produce great quantities of machinery, including ships, airplanes, vehicles, armaments, machine tools, and chemicals. Reinforcing the initial advantage — and assuring the U.S. unmistakable leadership in the capitalist world — the U.S. held 80% of gold reserves and had not only a powerful army but also the atomic bomb.

The U.S. stood to gain more than any other country from the opening of the entire world to unfettered trade. The U.S. would have a global market for its exports, and it would have unrestricted access to vital raw materials. In addition, U.S. capitalism could not survive without markets and allies. William Clayton, the assistant secretary of state for economic affairs, was among myriad U.S. policymakers who summed up this point: \"We need markets — big markets — around the world in which to buy and sell\".

There had been many predictions that peace would bring a return of depression and unemployment, as war production ceased and returning soldiers flooded the labor market. Compounding the economic difficulties was a sharp rise in labor unrest. Determined to avoid another economic catastrophe like that of the 1930s, U.S. President Franklin D. Roosevelt saw the creation of the postwar order as a way to ensure continuing U.S. prosperity. Design

Free trade relied on the free convertibility of currencies. Negotiators at the Bretton Woods conference, fresh from what they perceived as a disastrous experience with floating rates in the 1930s, concluded that major monetary fluctuations could stall the free flow of trade.

The liberal economic system required an accepted vehicle for investment, trade, and payments. Unlike national economies, however, the international economy lacks a central government that can issue currency and manage its use. In the past this problem had been solved through the gold standard, but the architects of Bretton Woods did not consider this option feasible for the postwar political economy. Instead, they set up a system of fixed exchange rates managed by a series of newly created international institutions using the U.S. dollar (which was a gold standard currency for central banks) as a reserve currency.

The Bretton Woods system of fixed exchange rates

The Bretton Woods system sought to secure the advantages of the gold standard without its disadvantages. Thus, a compromise was sought between the polar alternatives of either freely floating or irrevocably fixed rates—an arrangement that might gain the advantages of both without suffering the disadvantages of either while retaining the right to revise currency values on occasion as circumstances warranted.

The rules of Bretton Woods, set forth in the articles of agreement of the International Monetary

Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed exchange rates. The rules further sought to encourage an open system by committing members to the convertibility of their respective currencies into other currencies and to free trade.

The \"pegged rate\" or \"par value\" currency regime

What emerged was the \"pegged rate\" currency regime. Members were required to establish a parity of their national currencies in terms of gold (a \"peg\") and to maintain exchange rates within plus or minus 1% of parity (a \"band\") by intervening in their foreign exchange markets (that is, buying or selling foreign money). The \"reserve currency\"

In practice, however, since the principal \"Reserve currency\" would be the U.S. dollar, this meant that other countries would peg their currencies to the U.S. dollar, and — once convertibility was restored — would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the gold standard in the international financial system.

Meanwhile, in order to bolster faith in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, \"as good as gold.\" The U.S. currency was now effectively the world currency, the standard to which every other currency was pegged. As the world's key currency, most international transactions were denominated in dollars.

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system.

Member countries could only change their par value with IMF approval, which was contingent on (视……而定) IMF determination that its balance of payments was in a \"fundamental disequilibrium.\"

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FURTHER READING

The late Bretton Woods System

The U.S. balance of payments crisis (1958 — 1968)

After the end of World War II, the U.S. held $26 billion in gold reserves, of an estimated total of $40 billion (approx 65%). As world trade increased rapidly through the 1950s, the size of the gold base

increased by only a few percent. In 1958, the U.S. balance of payments swung negative. The first U.S. response to the crisis was in the late 1950s when the Eisenhower （艾森豪威尔，Dwight David 1890 — 1969，美国第三十四任总统[1953 — 1961]） administration placed import quotas （配 / 限额） on oil and other restrictions on trade outflows. More drastic measures were proposed, but not acted on. However, with a mounting recession that began in 1959, this response alone was not sustainable. In 1960, with Kennedy's election （肯尼迪John Fitzgerald, 1917 — 1963, 于1961-1963任美国第35任总统, 1963年11月22日被暗杀）, a decade-long effort to maintain the Bretton Woods System at the $35/ounce price was begun.

The design of the Bretton Woods System was that only nations could enforce gold convertibility on the anchor currency — the United States’. Gold convertibility enforcement was not required, but instead, allowed. Nations could forgo converting dollars to gold, and instead hold dollars. Rather than full convertibility, it provided a fixed price for sales between central banks. However, there was still an open gold market, 80% of which was traded through London, which issued a morning \"gold fix,\" (上午议定金价: 伦敦黄金市场于每天上午及下午由五家经营黄金业务的大商号根据上一交易情况及供需变化所商定的金价。但实际买卖价格仍由买卖双方自行商定，议定金价仅供参考。) which was the price of gold on the open market. For the Bretton Woods system to remain workable, it would either have to alter the peg of the dollar to gold, or it would have to maintain the free market price for gold near the $35 per ounce official price. The greater the gap between free market gold prices and central bank gold prices, the greater the temptation to deal with internal economic issues by buying gold at the Bretton Woods price and selling it on the open market.

However, keeping the dollar because of its ability to earn interest was still more desirable than holding gold. In 1960 Robert Triffin (罗伯特•特里芬October 5, 1911; Flobecq, Belgium – February 23, 1993; Ostend, Belgium，美国耶鲁大学经济学教授) was a Belgian economist best known for his critique of the Bretton Woods system, later known as Triffin’s dilemma特里芬悖论.) noticed that the reason holding dollars was more valuable than gold was because constant U.S. balance of payments deficits helped to keep the system liquid and fuel economic growth. What would be later known as Triffin's Dilemma was predicted when Triffin noted that if the U.S. failed to keep running deficits the system would lose its liquidity, not being able to keep up with the world's economic growth, thus bringing the system to a halt. Yet, continuing to incur such payment deficits also meant that over time the deficits would erode confidence in the dollar as the reserve currency creating instability.

The first effort was the creation of the \"London Gold Pool.\" The theory of the pool was that spikes in the free market price of gold, set by the \"morning gold fix\" in London, could be controlled by having a pool of gold to sell on the open market, which would then be recovered when the price of gold dropped. Gold's price spiked in response to events such as the Cuban Missile Crisis, and other smaller events, to as high as $40/ounce. The Kennedy administration began drafting a radical change of the tax system in order to spur more productive capacity, and thus encourage exports. This would culminate with his tax cut program of 1963, designed to maintain the $35 peg.

In 1967 there was an attack on the pound, and a run （挤兑）on gold in the \"sterling area,\"（.英镑区(1939年成立的,以英镑为中心的国际货币集团)） and on November 17, 1967, the British government was forced to devalue the pound. U.S. President Lyndon Baines Johnson (林顿·贝恩

斯·约翰逊 August 27, 1908 – January 22, 1973), often referred to as LBJ, was the thirty-sixth President of the United States from 1963 to 1969. 美国第36任总统) was faced with a brutal （残忍的，兽性的）choice, either he could institute protectionist measures, including travel taxes, export subsidies and slashing the budget — or he could accept the risk of a \"run on gold\" and the dollar. From Johnson's perspective: \"The world supply of gold is insufficient to make the present system workable — particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth.\" He believed that the priorities of the United States were correct, and that, while there were internal tensions in the Western alliance, that turning away from open trade would be more costly, economically and politically, than it was worth: \"Our role of world leadership in a political and military sense is the only reason for our current embarrassment in an economic sense on the one hand and on the other the correction of the economic embarrassment under present monetary systems will result in an untenable （adj. 支持不住的, 防守不住的, 站不住脚的, 不能维持的） position economically for our allies.\"

While West Germany agreed not to purchase gold from the U.S., and agreed to hold dollars instead, the pressure on both the Dollar and the Pound Sterling continued. In January 1968 Johnson imposed a series of measures designed to end gold outflow, and to increase American exports. However, to no avail: on March 17, 1968, there was a run on gold, the London Gold Pool 1(伦敦黄金总汇) was dissolved, and a series of meetings began to rescue or reform the system as it existed. However, as long as the U.S. commitments to foreign deployment continued, particularly to Western Europe, there was little that could be done to maintain the gold peg.

The attempt to maintain that peg collapsed in November 1968, and a new policy program was attempted: to convert Bretton Woods to a system where the enforcement mechanism floated by some means, which would be set by either fiat, or by a restriction to honor foreign accounts.

Structural changes underpinning the decline of international monetary management Return to convertibility

In the 1960s and 70s, important structural changes eventually led to the breakdown of international monetary management. One change was the development of a high level of monetary interdependence. The stage was set for monetary interdependence by the return to convertibility of the Western European currencies at the end of 1958 and of the Japanese yen in 1964. Convertibility facilitated the vast expansion of international financial transactions, which deepened monetary interdependence.

The growth of international currency markets

Another aspect of the internationalization of banking has been the emergence of international banking consortia（国际银行公会）. Since 1964 various banks had formed international syndicates, and by 1971 over three quarters of the world's largest banks had become shareholders in such syndicates. Multinational banks can and do make huge international transfers of capital not only for investment purposes but also for hedging and speculating against exchange rate fluctuations.

These new forms of monetary interdependence made possible huge capital flows. During the Bretton Woods era countries were reluctant to alter exchange rates formally even in cases of structural disequilibria. Because such changes had a direct impact on certain domestic economic groups, they came to be seen as political risks for leaders. As a result official exchange rates often became unrealistic in

market terms, providing a virtually risk-free temptation for speculators. They could move from a weak to a strong currency hoping to reap profits when a revaluation occurred. If, however, monetary authorities managed to avoid revaluation, they could return to other currencies with no loss. The combination of risk-free speculation with the availability of huge sums was highly destabilizing.

The decline of U.S. hegemony

A second structural change that undermined monetary management was the decline of U.S. hegemony. The U.S. was no longer the dominant economic power it had been for almost two decades. By the mid-1960s Europe and Japan had become international economic powers in their own right. With total reserves exceeding those of the U.S., with higher levels of growth and trade, and with per capita income approaching that of the U.S., Europe and Japan were narrowing the gap between themselves and the United States.

The shift toward a more pluralistic distribution of economic power led to increasing dissatisfaction with the privileged role of the U.S. dollar as the international currency. As in effect the world's central banker, the U.S., through its deficit, determined the level of international liquidity. In an increasingly interdependent world, U.S. policy greatly influenced economic conditions in Europe and Japan. In addition, as long as other countries were willing to hold dollars, the U.S. could carry out massive foreign expenditures for political purposes — military activities and foreign aid — without the threat of balance-of-payments constraints.

Dissatisfaction with the political implications of the dollar system was increased by détente（缓解政策） between the U.S. and the Soviet Union. The Soviet threat had been an important force in cementing the Western capitalist monetary system. The U.S. political and security umbrella helped make American economic domination palatable for Europe and Japan, which had been economically exhausted by the war. As gross domestic production grew in European countries, trade grew. When common security tensions lessened, this loosened the transatlantic dependence on defense concerns, and allowed latent economic tensions to surface.

The decline of the dollar

Reinforcing the relative decline in U.S. power and the dissatisfaction of Europe and Japan with the system was the continuing decline of the dollar — the foundation that had underpinned the post-1945 global trading system. The Vietnam War and the refusal of the administration of U.S. President Lyndon B. Johnson to pay for it and its Great Society programs through taxation resulted in an increased dollar outflow to pay for the military expenditures and rampant inflation, which led to the deterioration of the U.S. balance of trade position. In the late 1960s, the dollar was overvalued with its current trading position, while the Deutsche Mark and the yen were undervalued; and, naturally, the Germans and the Japanese had no desire to revalue and thereby make their exports more expensive, whereas the U.S. sought to maintain its international credibility by avoiding devaluation. Meanwhile, the pressure on government reserves was intensified by the new international currency markets, with their vast pools of speculative capital moving around in search of quick profits.

In contrast, upon the creation of Bretton Woods, with the U.S. producing half of the world's manufactured goods and holding half its reserves, the twin burdens of international management and the Cold War were possible to meet at first. Throughout the 1950s Washington sustained a balance of

payments deficit in order to finance loans, aid, and troops for allied regimes. But during the 1960s the costs of doing so became less tolerable. By 1970 the U.S. held under 16% of international reserves. Adjustment to these changed realities was impeded by the U.S. commitment to fixed exchange rates and by the U.S. obligation to convert dollars into gold on demand.

In sum, monetary interdependence was increasing at a faster pace than international management in the 1960s, leading up to the collapse of the Bretton Woods system. New problems created by interdependence, including huge capital flows, placed stresses on the fixed exchange rate system and impeded national economic management. Amid these problems, economic cooperation decreased, and U.S. leadership declined, and eventually broke down.

The paralysis（瘫痪）of international monetary management \"Floating\" Bretton Woods (1968 — 1972)

By 1968, the attempt to defend the dollar at a fixed peg of $35/ounce, the policy of the Eisenhower, Kennedy and Johnson administrations, had become increasingly untenable. Gold outflows from the U.S. accelerated, and despite gaining assurances from Germany and other nations to hold gold, the \"dollar shortage\" of the 1940s and 1950s had become a dollar glut. In 1967, the IMF agreed in Rio de Janeiro to replace the tranche （国际货币基金贷款划分的“部分”） division set up in 1946. Special Drawing Rights were set as equal to one U.S. dollar, but were not usable for transactions other than between banks and the IMF. Nations were required to accept holding SDRs equal to three times their allotment, and interest would be charged, or credited, to each nation based on their SDR holding. The original interest rate was 1.5%.

The intent of the SDR system was to prevent nations from buying pegged dollars and selling them at the higher free market price, and give nations a reason to hold dollars by crediting interest, at the same time setting a clear limit to the amount of dollars which could be held. The essential conflict was that the American role as military defender of the capitalist world's economic system was recognized, but not given a specific monetary value. In effect, other nations \"purchased\" American defense policy by taking a loss in holding dollars. They were only willing to do this as long as they supported U.S. military policy, because of the Vietnam war and other unpopular actions, the pro-U.S. consensus （多数人的意见, 舆论, 一致同意） began to evaporate. The SDR agreement, in effect, monetized the value of this relationship, but did not create a market for it.

The use of SDRs as \"paper gold\" seemed to offer a way to balance the system, turning the IMF, rather than the U.S., into the world's central banker. The US tightened controls over foreign investment and currency, including mandatory investment controls in 1968. In 1970, U.S. President Richard Nixon lifted import quotas on oil in an attempt to reduce energy costs; instead, however, this exacerbated dollar flight, and created pressure from petro-dollars now linked to gas-euros resulting the 1963 energy transition from coal to gas with the creation of the Dutch Gasunie. Still, the U.S. continued to draw down reserves. In 1971 it had a reserve deficit of $56 Billion dollars; as well, it had depleted most of its non-gold reserves and had only 22% gold coverage of foreign reserves. In short, the dollar was tremendously overvalued with respect to gold.

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NOTE

1．London gold pool, 伦敦黄金总汇，指1960年10月美元危机（dollar crisis）爆发后，伦敦金融黄金价格上涨至一盎司等于41美元，各国为了保卫美元的地位，于1961年11月缔结黄金总汇协定。该协定于1962年6月生效，由美、英、前西德、法、意、荷、瑞士、比利时等八国提供总数相当于2.7亿黄金给英格兰银行，使该银行有足够的黄金在伦敦自由市场依官价出售或买入，借此稳定黄金价格。但1965年以后，先有法国的退出，继有英镑贬值再度引发抢金潮，致无法继续出售黄金，只好于1968年3月停止黄金总汇操作，改行黄金两价制（two-tier (gold) price system of gold）即自由市场金价由市场供需决定，但美国对各国央行，仍以每盎司35美元出售黄金，而私人黄金交易仍可在自由市场进行，故金价分为市场及官价两种。该制直到1971年8月美国实施新经济政策方停止。

LESSON 3 Managed Floating Since 1973 and the European

Monetary System

The Present System

Since March 1973, the world has had a managed floating exchange rate system under which nations’ monetary authorities are entrusted with the responsibility to intervene in foreign exchange markets to smooth out short run fluctuations in exchange rates. This could be achieved by a policy of \"leaning against the wind\". This system was imposed on the world by the collapse of the Bretton Woods system in the face of chaotic conditions in foreign exchange markets and huge destabilizing speculation. The essential difference between this system and the Bretton Woods system is that governments are not compelled to intervene in foreign exchange markets. They intervene because they choose to do so.

In the early days of the managed floating system, serious attempts were made to devise specific rules for managing the float to prevent competitive exchange rate depreciations (which nations might use to stimulate their exports), thus possibly returning to the chaotic conditions of the 1930s. However, as the worst fears of abuses did not materialize, all of these attempts failed. Indeed, the 1976 Jamaica Accords formally recognized the managed floating system and allowed nations the choice of foreign exchange regime as long as their actions did not prove disruptive to trade partners. Between the period of 1974 — 1977 and 1981 — 1985, the United States generally followed a policy of benign neglect by not intervening in foreign exchange markets to stabilize the value of the dollar.

At the same time, there has been a movement away from a gold-based international monetary system. The role of gold has diminished as a result of the Jamaica Accords. The official price of gold was abolished. One-sixth of the gold paid into the IMF in quotas was to be returned to members, one-sixth to be auctioned by the IMF to private buyers with the proceeds being used to benefit the developing countries. The IMF was to retain the remaining two-thirds. Finally, gold was no longer to be the unit of account of the system. Since 1974, the IMF has measured all reserves and other official transactions in terms of SDRs instead of U.S. dollars. The Future

The economic hegemony enjoyed by the United States at the end of World War II has been eroded by

the phenomenal economic performance for South-East Asian regions, most particularly Japan, and the Four Litter Dragons — Hong Kong, Singapore, Taiwan, and Republic of Korea and also by the growing strength of an increasingly integrated Europe. The change in the balance of economic power means that we can no longer predict important economic changes, such as changes in the nature of the international financial system, simply by studying the preferences of any one country. In any situation involving three players who can form coalitions, outcomes are notoriously difficult to predict. One clear consequence of the new balance of power is a need for each party to consult with the others. It seems likely that with increasing financial and economic interdependence, the evolving international financial system will involve even closer cooperation. One of the consequences of the more even sharing of economic power is the potential emergence of three trading blocs of currencies, a dollar bloc based on the Americas, a yen bloc centered around Japanese trade, and a Euro bloc centered on the place of European trade.

Trade imbalances have become larger and more persistent as some countries suffered deficit while others enjoyed surplus. We can expect increased bilateral bargaining outside of international trade organizations such as the World Trade Organization if bilateral trade imbalances persist.

While the natural environment and international finance might appear to be disconnected, the two matters come together around the actions of another important international financial institution, the World Bank, which was co-established with the IMF in the Bretton Woods in 1944. Also known as the International Bank for Reconstruction and Development, the World Bank has been assisting developing nations since its creation but its lending has contributed to environmental and social damage on a massive scale so that it has been accused of assisting widespread global environmental destruction. The role of IMF has also been questioned for not taking into account the social needs of debtor nations and the political consequences of its demands, and that its policies being \"all head and no heart\". Partly in response to this, the IMF has become more flexible in its lending activities in recent years and has begun to grant even medium-term loans to overcome structural problems (something that has been traditionally done only by the World Bank). And the argument about the degree of exchange rate flexibility is continued. The arguments seem bound to circulate continuously as debate continues over the \"ideal\" system. It should become clear that each system has its weaknesses. The European Monetary System

The European Monetary System (EMS) began in March 1979 with eight of the nine members of the European Community (all but Great Britain) participating in its Exchange Rate Mechanism (ERM) as part of its aim toward greater monetary integration among its members, including the ultimate goal of creating a common currency and a community-wide central bank. The main features of the EMS are: 1) The European Currency Unit (ECU), defined as the weighted average of the currencies of member nations, was created. 2) The currency of each EU member was allowed to fluctuate by maximum of 2.25 percent on either side of its central rate or parity (6 percent for the British pound and Spanish peseta; Greece and Portugal were to join later). The EMS was created as a fixed but adjustable exchange rate system and with currencies of member nations floating jointly against the dollar. Starting in September 1992, however, the system came under attack and since August 1993 the range of allowed fluctuation was increased from ±2.25 percent to ±15 percent. 3) The establishment of the European Monetary Cooperation Fund (EMCF) to provide short- and medium-term balance of payments assistance to its members.

When the fluctuation of a member nation's currency reaches 75 percent of its allowed range, a “threshold of divergence” has been reached, and the nation is expected to take a number of corrective measures to prevent its currency from fluctuating outside the allowed range. Member nations were assigned a quota into the EMCF, 20 percent to be paid in gold and the remainder in dollars, in exchange for ECUs.

Eleven realignments occurred in the EMS between 1979 and 1987 in an effort to offset ongoing inflation rate differentials. Inflation rate differentials narrowed across Europe by the mid 1980s and by 1987 most capital controls were lifted.

In June 1989, a committee headed by Jacque Delors, the president of the European Commission, recommended a three-stage transition to the single currency. The first stage included widening the membership of the ERM. The second stage involved narrowing exchange rate bands as well as shifting control over some macroeconomic policies from national control to control by a central European Authority. The third stage would establish a European System of Central Banks to replace national central banks and replace national currencies with a single European currency. The Maastricht Treaty, signed at the end of 1991, set up a timetable for this process, with stage 3 starting no later than January 1, 1999. As planned later, on January 1 of 2002, Euro notes and coins would begin circulating alongside national currencies (It came true as a matter of fact). By July 1, 2002, changeover to Euro should be completed.

The Maastricht Treaty requires convergence of inflation rates and long-term interest rates among countries joining EMU, as well as exchange rate stability and debt reduction. An important political reality is the process leading up to European Monetary Union is the strong support it has enjoyed among the leaders of Europe. A similar level of support is not to be found among the citizens of European countries.

The main benefits of a single currency include: reducing costs of trading one currency for another, reducing exchange rate uncertainty, preventing competitive devaluations, and preventing speculative attacks. The benefits of switching a single currency do not come without costs. Probably the biggest cost is that each country cedes its right to set monetary policy to respond to domestic economic problems. In addition, exchange rates between countries can no longer adjust in response to regional problems. Whatever the costs of EMU, mechanism other than domestic monetary or exchange rate policy will have to bear the burden of economic adjustment after adoption of the single currency. Barriers to movements of labor have been removed, which encourages that adjustment process. Further labor market reforms may be necessary to increase labor markets' speed of adjustment. In addition, member countries may find it necessary to institute international tax and redistribution policies through growth of the European Union's budget to allow regional differences in policy stimulus or restraint. Summary

In this unit, we examined the operation of the international monetary system from the gold standard period to the present. A good international monetary system is one that maximizes the flow of international trade and investments, and leads to an equitable distribution of the gains from trade among nations.

The gold standard functioned from about 1870 to the outbreak of World WarⅠin 1914. The adjustment was mainly carried out through stabilizing short-term capital flows and induced income

changes, rather than through induced changes in internal prices, as postulated by the price-specie-flow mechanism. The period from 1919 to 1924 was featured by wildly fluctuating exchange rates. Starting in 1925, an attempt was made by Britain and other nations to re-establish the gold standard. But this attempt failed with the deepening of the Great Depression in 1931. The Bretton Woods system came into existence in 1944, which called for the establishment of the international monetary Fund. This system aimed to have nations follow a set of agreed rules of conduct in international trade and finance and provide nations with borrowing facilities to correct their temporary balance of payments disequilibrium. This was a gold-exchange standard with gold and convertible currencies (only the U.S. dollar at the beginning) as international reserves. Exchange rates were allowed to fluctuate by only 1 percent above and below established par values. Par values were to be changed only in cases of fundamental disequilibrium. Each member was assigned a quota into the Fund. The immediate cause of the collapse of the Bretton Woods system was the huge trade deficits in the U.S. and the destabilizing speculation in 1971. The fundamental cause of this collapse was the lack of an adequate adjustment mechanism. From March 1973 until now, the world has operated mainly under a managed float. In March 1979, the European Monetary System was formed with plans to create a single currency and a central bank in 1999. The single currency in the European monetary System has posed new opportunities and challenges to the world monetary system. The hegemony of the U.S. dollar under the Bretton Woods system has been replaced by a triple-hegemony represented by the U,S. dollar, Euro, and Japanese yen.

(from INTRODUCTION TO GLOBAL ECONOMIC ENVIRONMENT)

equitable // adj. Marked by or having equity; just and impartial. 公正的，公平

的，不偏袒的

synonyms: equitable, fair, just, impartial, unprejudiced, unbiased, objective, dispassionate Equitable also implies justice, but justice dictated by reason, conscience, and a natural sense of what is fair to all concerned 也含有公正的意思，但强调由理智、良心和在通盘考虑后自然得出的公正；

These adjectives mean free from favoritism, self-interest, or bias in judgment. Fair is the most general:最常用a fair referee 公平的裁判员；

Just stresses conformity with what is legally or ethically right or proper.强调与法律或道德准则所提倡的一致：a kind and just man一位和善、公正的男人； Impartial emphasizes lack of favoritism强调不偏袒；

Unprejudiced means without favorable or unfavorable preconceived opinions or judgments: 表示没有预先形成偏好或厌恶的想法或评判；

Unbiased implies absence of the preference or inclination inhibiting impartiality: 强调无偏爱，无偏见；

Objective implies detachment that permits observation and judgment without undue reference to one's personal feelings or thoughts: 指纯客观地观察，与一切个人感情、偏见或意见都无关; Dispassionate means free from or unaffected by strong personal emotions: 指没有或不受个人强烈情绪的影响。

price-specie-flow mechanism价格-货币-流动机制

BACKGROUND KNOWLEDGE

Bretton Woods Agreement is the result of a conference of 44 nations held in 1944 at Bretton Woods, U.

S. A., to plan better cooperation in world trade and currency matters. The International Monetary Fund and the International Bank for Reconstruction and Development (the World Bank) were started under the control of the United Nations, with the aim of raising world incomes, encouraging international trade and investment, and making steadier the exchange rates between currencies. 布雷顿森林协定是1944年在美国布雷顿森林举行的有44个国家参加的（布雷顿森林）会议的产物，会议对世界贸易及货币事务制定更好的合作方案。国际货币基金及国际复兴开发银行（世界银行）在联合国的管理下开办，目的在于提高世界收益，鼓励国际贸易及投资，使各国货币之间的汇率较为稳定。

International Monetary Fund is a fund set up in 1944 at the Bretton Woods conference as a specialized

agency of the United Nations, mainly t encourage monetary cooperation between nations and to increase international trade. Its offices are in Washington and its members number more than 120 states. Each member deposits, mainly in its own currency, an amount determined by the size of its national income, international trade and currency reserves. A member in temporary difficulty with its balance of payments may use its Regular and Special Drawing Rights and can get further help if necessary. The Fund is essentially a bank from which a borrower uses its own currency to buy the foreign currency it needs. The work of the Fund in rebuilding confidence in currencies that are in temporary difficulty has been valuable. 国际货币基金组织是1944年在布雷顿森林会议上建立的基金，作为联合国专门机构，主要为促进国家之间的货币合作，以扩大国际贸易。总部在华盛顿，成员国有120多个。每个成员国用其本国货币存入一笔按其国民收入、国际贸易及货币储备的大小而决定的金额。国际收支有暂困难的成员国可以使用其正常及特别提款权，可以得到必要的进一步援助。基金主要发挥银行作用/功能，借款人可以用其本国货币购买所需外汇。信贷只有三至五年的短期，基金对遇到临时困难的货币重建信心的工作是非常有价值的。 European Monetary System (EMS) A system of exchange-rate stabilization involving the countries of

the European Union, which began operations in 1979. There are two elements: the Exchange Rate Mechanism (ERM汇率机制), under which participating countries commit themselves to maintaining the values of their currencies within agreed limits, and a balance of payments support mechanism, organized through the European Monetary Cooperation Fund. The ERM operates by giving each currency a value in ECUs 欧洲货币单位 and drawing up a parity grid 制定一份平价网图 giving exchange values in ECUs for each pair of currencies. In practice, the Deutschmark has replaced the ECU as the anchor currency（fixed or secured稳/固定的货币）. If market rates differ from the agreed parity by more than a permitted percentage (currently 2.25% or 6% depending on the currency), the relevant governments have to take action to correct the disparity. Two currencies, the UK pound and the Italian lira were forced out of the ERM in 1992 and some of the currencies remaining in it are now allowed 15% fluctuations. The ultimate goal of the EMS is also controversial (disputed). To some its function is to facilitate monetary cooperation; to others, it is the first step towards European Monetary Union (EMU欧洲货币联盟), with a single European currency and a European central bank. The decision to create a single currency was part of the Maastricht Treaty in

1991, provided that the participants fulfill certain conditions. Countries that fulfill the conditions for EMU will be named in 1998. their currencies will be locked together in 1999, enabling the common European currency (the euro) to be in circulation by 2002.

European Monetary Cooperation Fund A fund organized by the European Monetary System in which

members of the European Union deposit reserves to provide a pool of resources to stabilize exchange rates and to finance balance of payments support. In return for depositing 20% of their gold and gross dollar reserves, member states have access to a wide variety of credit facilities, denominated (titled) in ECU, from the fund.

European Monetary Institute (EMI) An organization set up by the Maastricht Treaty in 1991 in order to

coordinate the economic and monetary policy of members of the European Union before the introduction of a single European currency in accordance with the objectives of European Monetary Union. The members of the EMI council are the governors of the central banks of the 15 EU countries.

weighted average In statistical calculation, weighted average is an arithmetical mean that gives each item

its proper weight or importance.统计计算中，加权平均数/值是一种数学方法，它把适当的权数（in Statistics weight is a factor assigned to a number in a computation, as in determining an average, to make the number's effect on the computation reflect its importance.【统计学】权数：在计算中指定给某数字的系数，从而使该数字对运算的效果反映其重要性，用于决定一个平均数）或重要性给予每个项目。For example, if a person buys a commodity on three occasions, 100 tons at $70 per ton, 300 tons at $80 per ton, and 50 tons at $95 per ton, his purchases total 450 tons; the simple average price would be (70 + 80 + 95) ÷3 = $81.7. The weighted average, taking into account the amount purchased on each occasion, would be [(100×70) + (300 × 80) + (50 × 95)] ÷ 450 = $79.4 per ton.

Managed Floating In fact, the floating exchange rate is “intervened” by the central bank in a country,

not floating freely in exchange market. So it is really managed floating. 实际上，浮动汇率是由一个国家的中央银行“干预”，而不是任其在外汇市场自由浮动，故实际是管理的浮动。亦称managed currency: A currency in which the government controls, or at least influences, the

exchange rate. This control is usually exerted by the central bank buying and selling in the foreign-exchange market. 政府控制的货币，或至少对外汇汇率产生影响的货币。这种控制是中央银行在外汇市场的买卖行为得以实施的。

亦称clean floating A government policy allowing a country’s currency to fluctuate without direct

intervention in the foreign-exchange markets. In practice, clean floating is rare as governments are frequently tempted to manage exchange rates by direct intervention by means of the official reserves, a policy sometimes called managed floating (see also managed currency). However, clean floating does not necessarily mean that there is no control of exchange rates, as they can still be influenced by the government’s monetary policy.

比较dirty floating: It is the state that the float of exchange rate is actually controlled and interfered

by the government. 肮脏浮动，不自由浮动：是指汇率的浮动实际由政府控制干预的情况。 Four Little Dragons 四小龙，dragon小龙，指亚洲新兴工业国家或地区，常写作 “Four Dragons”。

如：

Japan’s chasers are the new industrialized “dragons” — Taiwan, Singapore, Korea and Hong Kong. 紧追日本之后的是新兴的工业化“小龙”——台湾、新加坡、韩国、香港。

As one of the region’s “Four Dragons”, Taiwan’s economic success has been observed and admired around the world. 台湾作为这一地区的四小龙之一，其经济成就一直受到全世界的注目和赞赏。

EXERCISES

Ⅰ. Translate the following.

1. with the responsibility to intervene in foreign exchange markets to smooth out short run

fluctuations in exchange rates

2. to devise specific rules for managing the float to prevent competitive exchange rate depreciations 3. growing strength of an increasingly integrated Europe

4. be accused of assisting widespread global environmental destruction 5. defined as the weighted average of the currencies of member nations

6. when the fluctuation of a member nation’s currency reaches 75 percent of its allowed range 7. eleven realignments occurred in the EMS between 1979 and 1987

8. bear the burden of economic adjustment after adoption of the single currency

9. examine the operation of the international monetary system from the gold standard period to the

present

10. as postulated by the price-specie-flow mechanism 11. be featured by wildly fluctuating exchange rates

12. provide nations with borrowing facilities to correct their temporary balance of payments

disequilibrium

Ⅱ. Put the following paragraphs into Chinese.

1. At the same time, there has been a movement away from a gold-based international monetary system. The role of gold has diminished as a result of the Jamaica Accords. The official price of gold was abolished. One-sixth of the gold paid into the IMF in quotas was to be returned to members, one-sixth to be auctioned by the IMF to private buyers with the proceeds being used to benefit the developing countries. The IMF was to retain the remaining two-thirds. Finally, gold was no longer to be the unit of account of the system. Since 1974, the IMF has measured all reserves and other official transactions in terms of SDRs instead of U.S. dollars.

2. The European Monetary System (EMS) began in March 1979 with eight of the nine members of

the European Community (all but Great Britain) participating in its Exchange Rate Mechanism (ERM) as part of its aim toward greater monetary integration among its members, including the ultimate goal of creating a common currency and a community-wide central bank.

3. It seems likely that with increasing financial and economic interdependence, the evolving

international financial system will involve even closer cooperation. One of the consequences of the more even sharing of economic power is the potential emergence of three trading blocs of currencies, a dollar bloc based on the Americas, a yen bloc centered around Japanese trade, and a Euro bloc centered on the place of European trade.

4. In June 1989, a committee headed by Jacque Delors, the president of the European Commission,

recommended a three-stage transition to the single currency. The first stage included widening the membership of the ERM. The second stage involved narrowing exchange rate bands as well as shifting control over some macroeconomic policies from national control to control by a central European Authority. The third stage would establish a European System of Central Banks to replace national central banks and replace national currencies with a single European currency. Ⅲ. Read the passage and try to get the main idea.

Economic and Monetary Union (EMU)

In June 1988 the European Council confirmed the objective of the progressive realization of Economic and Monetary Union (EMU). It mandated a committee chaired by Jacques Delors, the then President of the European Commission, to study and propose concrete stages leading to this union.

The committee was composed of the governors of the then European Community (EC) national central banks; Alexandre Lamfalussy, the then General Manager of the Bank for International Settlements (BIS); Niels Thygesen, professor of economics, Denmark; and Miguel Boyer, the then President Banco Exterior de Espana (西班牙对外银行).

The resulting Delors Report proposed that economic and monetary union should be achieved in three discrete but evolutionary steps. Stage One of EMU

On the basis of the Delors Report, the European Council decided in June 1989 that the first stage of the realization of economic and monetary union should begin on 1 July 1990. On this date, in principle, all restrictions on the movement of capital between Member States were abolished. Committee of Governors

The Committee of Governors of the central banks of the Member States of the European Economic Community, which had played an increasingly important role in monetary cooperation since its creation in May 1964, was given additional responsibilities. These were laid down in a Council Decision dated 12 March 1990. Their new tasks included holding consultations on, and promoting the coordination of the, the monetary policies of the Member States, with the aim of achieving price stability.

In view of the relatively short time available and the complexity of the tasks involved, the preparatory work for Stage Three of Economic and Monetary Union (EMU) was also initiated by the Committee of Governors. The first step was to identify all the issues which should be examined at an early stage, to establish a work program by the end of 1993 and to define accordingly the mandates of the existing sub-committees and working groups established for that purpose. Legal preparations

For the realization of Stages Two and Three, it was necessary to revise the Treaty establishing the European Economic Community (the Treaty of Rome) in order to establish the required institutional structure. To this end, an Intergovernmental Conference on EMU was convened, which was held in 1991 in parallel with the Intergovernmental Conference on political union.

The negotiations resulted in the Treaty on European Union which was agreed in December 1991 and signed in Maastricht on 7 February 1992. However, owing to delays in the ratification process, the Treaty (which amended the Treaty establishing the European Economic Community — changing its name to the Treaty establishing the European Community – and introduced, inter alia, the Protocol on the Statute of

the European System of Central Banks and of the European Central Bank and the Protocol on the Statute of the European Monetary Institute) did not come into force until 1 November 1993.

FURTHER READING

Fixed or Flexible?

Getting the Exchange Rate Right in the 1990s

Analysts agree that \"getting the exchange rate right\" is essential for economic stability and growth in developing countries. Over the past two decades, many developing countries have shifted away from fixed exchange rates (that is, those that peg the domestic currency to one or more foreign currencies) and moved toward more flexible exchange rates (those that determine the external value of a currency more or less by the market supply and demand for it). During a period of rapid economic growth, driven by the twin forces of globalization and liberalization of markets and trade, this shift seems to have served a number of countries well. But as the currency market turmoil in Southeast Asia has dramatically demonstrated, globalization can amplify the costs of inappropriate policies. Moreover, the challenges facing countries may change over time, suggesting a need to adapt exchange rate policy to changing circumstances.

This paper examines the recent evolution of exchange rate policies in the developing world. It looks at why so many countries have made a transition from fixed or \"pegged\" exchange rates to \"managed floating\" or \"independently floating\" currencies. It discusses how economies perform under different exchange rate arrangements, issues in the choice of regime, and the challenges posed by a world of increasing capital mobility, especially when banking sectors are inadequately regulated or supervised. The analysis suggests that exchange rate regimes cannot be unambiguously rated in terms of economic performance. But it seems clear that, whatever exchange rate regime a country pursues, long-term success depends on a commitment to sound economic fundamentals — and a strong banking sector. From Fixed to Flexible A Brief History

The shift from fixed to more flexible exchange rates has been gradual, dating from the breakdown of the Bretton Woods system of fixed exchange rates in the early 1970s, when the world’s major currencies began to float. At first, most developing countries continued to peg their exchange rates — either to a single key currency, usually the U.S. dollar or French franc, or to a basket of currencies. By the late 1970s, they began to shift from single currency pegs to basket pegs, such as to the IMF’s special drawing right (SDR). Since the early 1980s, however, developing countries have shifted away from currency pegs — toward explicitly more flexible exchange rate arrangements. This shift has occurred in most of the world’s major geographic regions.

Back in 1975, for example, 87 percent of developing countries had some type of pegged exchange rate. By 1996, this proportion had fallen to well below 50 percent. When the relative size of economies is taken into account, the shift is even more pronounced. In 1975, countries with pegged rates accounted for 70 percent of the developing world’s total trade; by 1996, this figure had dropped to about 20 percent. The overall trend is clear, though it is probably less pronounced than these figures indicate because many countries that officially describe their exchange rate regimes as \"managed floating\" or even \"independently floating\" in practice often continue to set their rate unofficially or use it as a policy

instrument.

Several important exceptions must be mentioned. A prime example is the CFA franc1（非洲金融共同体法郎） zone in sub-Saharan Africa, where some 14 countries have pegged their rate to the French franc since 1948 — with one substantial devaluation in 1994. In addition, some countries have reverted, against the trend, from flexible to fixed rate regimes. These include Argentina, which adopted a type of currency-board （货币局制度，阿根廷危机的根源） arrangement in 1991, and Hong Kong SAR (Special Administrative Region), which has had a similar arrangement since 1983.

Nevertheless, the general shift from fixed to flexible has been broadly based worldwide. In 1976, pegged rate regimes were the norm in Africa, Asia, the Middle East, nonindustrial Europe, and the Western Hemisphere. By 1996, flexible exchange rate regimes predominated in all these regions. Why the Shift?

The considerations that have led countries to shift toward more flexible exchange rate arrangements vary widely; also, the shift did not happen all at once. When the Bretton Woods fixed rate system broke down in 1973, many countries continued to peg to the same currency they had pegged to before, often on simple historical grounds (只是根据历史的原因). It was only later, when major currencies moved sharply in value, that countries started to abandon these single-currency pegs.

Many countries that traditionally pegged to the U.S. dollar, for instance, adopted a basket approach during the first half of the 1980s, in large part because the dollar was appreciating rapidly. Another key element was the rapid acceleration of inflation in many developing countries during the 1980s. Countries with inflation rates higher than their main trading partners often depreciated their currencies to prevent a severe loss of competitiveness. This led many countries in the Western Hemisphere, in particular, to adopt \"crawling pegs,\"（浮动钉住, 小幅度调整汇率, 小步调整的汇价钉住办法） whereby exchange rates could be adjusted according to such pre-set criteria as relative changes in the rate of inflation. Later, some countries that suffered very high rates of inflation shifted back to a pegged exchange rate as a central element of their stabilization efforts. (These exchange-rate-based stabilization programs have typically been short-lived, with the median duration of a peg about 10 months.)

Many developing countries have also experienced a series of external shocks. In the 1980s, these included a steep rise in international interest rates, a slowdown of growth in the industrial world, and the debt crisis. Often, adjustment to these disturbances required not only discrete currency depreciations but also the adoption of more flexible exchange rate arrangements. In recent years, increased capital mobility and, in particular, waves of capital inflows and outflows have heightened the potential for shocks and increased pressures for flexibility.

The trend toward greater exchange rate flexibility has been associated with more open, outward-looking policies on trade and investment generally and increased emphasis on market-determined exchange rates and interest rates. As a practical matter, however, most developing countries are still not well-placed to allow their exchange rates to float totally freely. Many have small and relatively thin financial markets, where a few large transactions can cause extreme volatility （不稳定性）. Thus, active management is still widely needed to help guide the market. In these circumstances, a key issue for the authorities is where and when to make policy adjustments — including the use of official intervention to help avoid substantial volatility and serious misalignments （误差）.

Macroeconomic Performance Under Different Regimes

Neither of the two main exchange regimes — fixed or flexible — ranks above the other in terms of its implications for macroeconomic performance. Although in previous years inflation appeared consistently lower and less volatile in countries with pegged exchange rates, in the 1990s the difference has narrowed substantially. Output growth also does not seem to differ across exchange rate regimes. While the median growth rate in countries with flexible exchange rates has recently appeared higher than in those with pegged rates, that result reflects the inclusion of the rapidly growing Asian countries in the \"flexible\" category; yet many of these countries in practice have operated a tightly managed policy. When these countries are excluded, growth performance does not differ significantly between the two sets of countries.

Evidence also suggests that, contrary to conventional wisdom, misalignments and currency \"crashes\" are equally likely under pegged and flexible exchange rate regimes. Indeed, in 116 separate cases between 1975 and 1996 — where an exchange rate fell at least 25 percent within a year — nearly half were under flexible regimes. For both types, there was a large cluster of such crashes during the period immediately following the debt crisis of 1982. In part, this may reflect the fact that relatively few developing countries have truly floating exchange rates — and that, even if they had an officially declared flexible rate policy, they were often in practice pursuing an unofficial \"target\" rate that was then abandoned.

Choosing a Regime

The early literature on the choice of exchange rate regime took the view that the smaller and more \"open\" an economy (that is, the more dependent on exports and imports), the better it is served by a fixed exchange rate. A later approach to the choice of exchange rate regime looks at the effects of various random disturbances （随机干扰） on the domestic economy. In this framework the best regime is the one that stabilizes macroeconomic performance, that is, minimizes fluctuations in output, consumption, the domestic price level, or some other macroeconomic variable. The ranking of fixed and flexible exchange rate regimes depends on the nature and source of the shocks to the economy, policymakers’ preferences (that is, the type of costs they wish to minimize), and the structural characteristics of the economy.

In an extension of this approach, economists have viewed the policymaker’s decision not simply as a choice between a purely fixed and a purely floating exchange rate but as a range of choices with varying degrees of flexibility. In general, a fixed exchange rate (or a greater degree of fixity) is preferable if the disturbances impinging on the economy are predominantly monetary — such as changes in the demand for money — and thus affect the general level of prices. A flexible rate (or a greater degree of flexibility) is preferable if disturbances are predominantly real — such as changes in tastes or technology that affect the relative prices of domestic goods — or originate abroad. Credibility Versus Flexibility

In the 1990s another strand of analysis has focused on the credibility that authorities can gain under a fixed regime. Some argue that adopting a pegged exchange rate — by providing an unambiguous objective \"anchor\" for economic policy — can help establish the credibility of a program to bring down inflation. The reasons for this seem intuitively obvious. In fixed regimes, monetary policy must be

subordinated to the requirements of maintaining the peg. This in turn means that other key aspects of policy, including fiscal policy （财政政策）, must be kept consistent with the peg, effectively \"tying the hands\" of the authorities. A country trying to maintain a peg may not, for example, be able to increase its borrowing through the bond market because this may affect interest rates and, hence, put pressure on the exchange rate peg.

So long as the fixed rate is credible (that is, the market believes it can and will be maintained), expectations of inflation will be restrained — a major cause of chronic inflation （长期通货膨胀）. The risk is, of course, that the peg becomes unsustainable if confidence in the authorities’ willingness or ability to maintain it is lost.

A flexible exchange rate provides greater room for maneuver in a variety of ways. Not least, it leaves the authorities free to allow inflation to rise — which is also a way, indirectly, to increase tax revenue. The danger here is that it will probably be harder to establish that there is a credible policy to control inflation — and expectations of higher inflation often become self-fulfilling.

But the discipline of a pegged exchange rate need not necessarily be greater. Even with a peg, the authorities still retain some flexibility, such as an ability to shift the inflationary cost of running fiscal deficits into the future. Ways to do this include allowing international reserves to diminish, or allowing external debt to accumulate until the peg can no longer be sustained. In a more flexible regime, the costs of an unsustainable policy may be revealed more quickly — through widely observed movements in exchange rates and prices. If this is the case, then a flexible regime may exert an even stronger discipline on policy. In any event, a policymaker’s commitment to a peg may not be credible for long if the economy is not functioning successfully. For example, maintaining interest rates at very high levels to defend the exchange rate may over time undermine the credibility of the peg — especially if it has damaging effects on real activity or the health of the banking system.

In many cases, the apparent trade-off between credibility and flexibility may depend not only on the economy but also on political considerations. For instance, it may be more costly in political terms to adjust a pegged exchange rate than to allow a flexible rate to move gradually by a corresponding amount. Authorities must shoulder the responsibility for adjusting a peg, whereas movements in an exchange rate that is allowed, to some degree at least, to fluctuate in response to changes in the demand and supply for the currency can be attributed to market forces. When the political costs of exchange rate adjustments are high, a more flexible regime will likely be adopted. Pegging: A Single Currency or Basket?

For those that do adopt an exchange rate anchor, a further choice is whether to peg to a single currency or to a basket of currencies. The choice hinges on （以……为转移） both the degree of concentration of a country’s trade with particular trading partners and the currencies in which its external debt is denominated. When the peg is to a single currency, fluctuations in the anchor currency against other currencies imply fluctuations in the exchange rate of the economy in question against those currencies. By pegging to a currency basket instead, a country can reduce the vulnerability （易损性，脆弱性） of its economy to fluctuations in the values of the individual currencies in the basket. Thus, in a world of floating exchange rates among the major currencies, the case for a single-currency peg is stronger if the peg is to the currency of the dominant trading partner. However, in some cases, a

significant portion of the country’s debt service may be denominated in other currencies. This may complicate the choice of a currency to which to peg. Challenges Posed by Fast Growth and Capital Inflows

The successful development of an emerging market economy should, economists often conjecture, tend to result in an appreciation of the domestic currency in real (inflation-adjusted) terms. Such an appreciation over the long term has been evident in Korea, Taiwan Province of China, Singapore, Hong Kong SAR, and — to a lesser extent — Chile.

This relationship between economic growth and real appreciation is assumed to stem from a tendency for productivity growth in the manufacture of traded goods to outpace that of goods and services that are not traded internationally. In practice, that tendency has been apparent, so far at least, only in Korea and Taiwan Province of China. In other emerging market economies, the phenomenon appears muted or absent. This may be because those economies are at a (relatively) early stage of their development or perhaps because other influences — such as shifts in the international distribution of production of traded goods and changes in trade restrictions and transportation and other costs of market penetration — have obscured it.

In these circumstances, the choice between fixed and flexible exchange rate arrangements hinges largely on the preference of policymakers between nominal exchange rate appreciation and relatively more rapid inflation. The results in terms of real exchange rate changes may be nearly the same with either approach. For example, between 1980 and 1996, while Hong Kong SAR, which has had a type of currency board arrangement since 1983, experienced relatively higher inflation than Singapore, which had a managed floating regime, their real exchange rates appreciated at roughly similar rates. Adjusting to Capital Inflows

In many fast-growing emerging market economies, upward pressure on the exchange rate in recent years has stemmed largely from vastly increased private capital inflows. When capital inflows accelerate, if the exchange rate is prevented from rising, inflationary pressures build up and the real exchange rate will appreciate through higher domestic inflation. To avoid such consequences, central banks have usually attempted to \"sterilize\" the inflows — by using offsetting open market operations to try and \"mop up\" the inflowing liquidity.

Such operations tend to work at best only in the short term for several reasons. First, sterilization prevents domestic interest rates from falling in response to the inflows and, hence, typically results in the attraction of even greater capital inflows. Second, given the relatively small size of the domestic financial market compared with international capital flows, sterilization tends to become less effective over time. Finally, fiscal losses from intervention, arising from the differential between the interest earned on foreign reserves and that paid on debt denominated in domestic currency, will mount, so sterilization has a cost.

As capital inflows increase, tension will likely develop between the authorities’ desire, on the one hand, to contain inflation and, on the other, to maintain a stable (and competitive) exchange rate. As signs of overheating appear, and investors become increasingly aware of the tension between the two policy goals, a turnaround in market sentiment may occur, triggering a sudden reversal in capital flows.

Since open market operations have only a limited impact in offsetting the monetary consequences of large capital inflows, many countries have adopted a variety of supplementary measures. In some

countries the authorities have raised the amount of reserves that banks are required to maintain against deposits. In others, public sector deposits have been shifted from commercial banks into the central bank — to reduce banks’ reserves. A number of countries have used prudential regulations, such as placing limits on the banking sector’s foreign exchange currency exposure. Some central banks have used forward exchange swaps to create offsetting capital outflows — although there appear to be limits on how long such a policy can be used, given the likelihood, as with open market operations, that it can cause fiscal losses. In other cases the authorities have responded by widening the exchange rate bands for their currencies, thus allowing some appreciation. And a few have introduced selective capital controls.

While such instruments and policies can for a time relieve some upward pressure on a currency and ease inflationary pressure, none appears to have been able to prevent an appreciation of the real exchange rate completely.

Can exchange rate flexibility help manage the impact of volatile capital flows? As mentioned earlier, if interest rates and monetary policy are \"locked in\" by an exchange rate anchor, the burden of adjustment falls largely on fiscal policy — that is, government spending and tax policies. But often taxes cannot be raised or spending reduced in short order, nor can needed infrastructure investments be postponed indefinitely. (Clearly, policymakers who cannot adjust fiscal policy in the short run should not adopt a rigidly fixed exchange rate regime.) Allowing the exchange rate to appreciate gradually to accommodate upward pressures would appear to be a safer way of maintaining long-run economic stability. Furthermore, by allowing the exchange rate to adjust in response to capital inflows, policymakers can influence market expectations. In particular, policymakers can make market participants more aware that they face a \"two-way\" bet — exchange rate appreciations can be followed by depreciations. This heightened awareness of exchange rate risks should discourage some of the more speculative short-term capital flows, thereby reducing the need for sharp corrections. Volatility and Banking Sector Weakness

How exchange rate changes affect an economy depends, among other things, on the health of the banking system. In many fast-growing emerging markets with large-scale capital inflows adding to liquidity, bank lending has increased markedly. In Mexico, for example, bank lending to the private sector surged to an average of 27 percent of GDP during 1989 — 94 from only 11 percent in the three preceding years. Such rapid credit expansion often occurs in an environment of booming optimism about the outlook for the economy more broadly, and the resulting rise in asset prices — and especially prices of real estate — often raises the value of loan collateral, stimulating yet more bank lending. If the banking sector lacks adequate prudential regulation and supervision, commercial banks may end up with portfolios （投资组合） excessively exposed to domestic assets with vulnerable values and to foreign currency liabilities. In the event of a sudden reversal of sentiment and currency depreciation, the large losses banks face can become a macroeconomic problem–as in some Asian economies recently.

Various mechanisms, including improved banking regulation and the establishment of deposit insurance funds, have been put in place in developing countries in recent years to guard against such banking sector problems. More often than not, however, banking sector losses have continued to end up as a burden on taxpayers — as the authorities have been forced to bail out banks to prevent a systemic \"chain reaction\" of defaults. The establishment and observance of a set of core regulatory, supervisory,

and accounting standards — such as those recommended by the Basle Committee on Banking Supervision — would go some way toward meeting the need for stronger standards and supervision in the banking sector.

Capital Account Convertibility

In recent years, many emerging economies have gradually relaxed or removed capital controls and are now proceeding toward full capital account convertibility. Remaining restrictions are nevertheless significant, and are mostly asymmetric （不均匀的，不对称的） — placing more restrictions on capital flowing out than on capital flowing in. More liberal rules in both directions would have the advantage of increasing economic efficiency (allowing more capital to flow to where it gets the best returns). Liberalization would also provide domestic investors with more opportunities to diversify their portfolios and reduce the concentration of exposure to domestic market risks.

A movement toward full capital account convertibility, however, can succeed only in the context of sound (稳健的) economic fundamentals, a sound banking sector, and an exchange rate policy that allows adequate flexibility. The increasing number of developing countries adopting more flexible exchange rate regimes probably reflects, at least in part, recognition that increased flexibility may be helpful in making the transition to full convertibility.

As developing countries become ever more integrated with global financial markets, they will likely experience more volatility in cross-border capital flows. How to manage such volatility has thus become an important issue for policymakers. One obvious way to contain volatility is to try to reduce reliance on short-term capital flows. It would be unrealistic, however, to try to distinguish between those flows that are destabilizing and those that perform important stabilizing functions in the foreign exchange and other markets. It would also be undesirable to eliminate short-term flows entirely — given that, among other things, they help provide liquidity to the currency market.

Greater exchange rate flexibility need not imply free floating. It may, for example, involve the adoption of wider bands around formal or informal central parities and active intervention within the band. The greater the role of fiscal policy — in helping to adjust the economy to changing conditions — the less the need for wider bands or large-scale intervention. Nevertheless, exchange rate adjustments may be needed at times. Under any regime, appropriate and transparent economic and financial policies are critical for safeguarding macroeconomic stability. They may not, however, always be sufficient to prevent exchange rate volatility. Summary

Until recently, most evidence suggested that developing countries with pegged exchange rates enjoyed relatively lower and more stable rates of inflation. In recent years, however, many developing countries have moved toward flexible exchange rate arrangements — at the same time as inflation has come down generally across the developing world. Indeed, the average inflation rate for countries with flexible exchange rates has fallen steadily — to where it is no longer significantly different from that of countries with fixed rates. The perceived need for greater flexibility has probably resulted from the increasing globalization of financial markets — which has integrated developing economies more closely into the global financial system. This in turn imposes an often strict discipline on their macroeconomic policies.

Trade-offs exist between fixed and more flexible regimes. If economic policy is based on the \"anchor\" of a currency peg, monetary policy must be subordinated to the needs of maintaining the peg. As a result the burden of adjustment to shocks falls largely on fiscal policy (government spending and tax policies). For a peg to last, it must be credible. In practice, this often means that fiscal policy must be flexible enough to respond to shocks. Under a more flexible arrangement, monetary policy may be more independent but inflation can be somewhat higher and more variable.

Considerations affecting the choice of regime may change over time. When inflation is very high, a pegged exchange rate may be the key to a successful short-run stabilization program. Later, perhaps in response to surging capital inflows and the risk of overheating, more flexibility is likely to be required to help relieve pressures and to signal the possible need for adjustments to contain an external imbalance. To move toward full capital account convertibility, especially in a world of volatile capital flows, flexibility may become inescapable.

FROM: http://www.imf.org/external/pubs/ft/issues13/index.htm

NOTES

1. Author Information

Francesco Caramazza is a Deputy Division Chief in the IMF’s Research Department and holds a doctorate from Johns Hopkins University.

Jahangir Aziz is an Economist in the IMF’s Research Department. He received his Ph.D. from the University of Minnesota.

2． The CFA franc: 非洲共同体法郎，new peg for a common currency The CFA franc is the common currency of 14 countries in West and Central Africa, 12 of which are former French colonies. These 14 countries comprise the African Financial Community, which in turn is comprised of two regional economic and monetary groupings. Eight countries — Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo — form the West African Economic and Monetary Union (WAEMU) while six countries — Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea and Gabon — are linked as members of the Central African Economic and Monetary Community (CEMAC).

Each regional grouping issues its own CFA franc. The common currency of WAEMU is the franc de la Communauté financière de l'Afrique (CFA franc), issued by the Banque centrale des Etats de l'Afrique de l'Ouest (BCEAO). CEMAC's common currency is the franc de la Coopération

financière africaine (also known as CFA franc), issued by the Banque des Etats de l'Afrique centrale (BEAC). Although the two CFA francs are legal tender only in their respective regions, each region's central bank maintains the same parity of its CFA franc against the French franc and capital can move freely between the two regions.

The CFA franc has been pegged to the French franc since 1948*. Only one devaluation has occurred during the history of the currency peg -- from CFA50 to CFA100 = FF1 in January 1994.

With the introduction of the euro on January 1, 1999, the French franc is fixed against the currencies of the 10 other European countries participating in the euro. Nevertheless, the member countries of the CFA franc zone and France agreed to maintain the currency peg following the euro's introduction through an arrangement with the French Treasury.

The French Treasury has retained sole responsibility for guaranteeing convertibility of CFA francs into euros, without any monetary policy implication for the Bank of France (French central bank) or the European Central Bank. While the two CFA central banks maintain an overdraft facility with the French Treasury, the amount that can be withdrawn is limited by operating rules that have applied since 1973. Each CFA central bank must keep at least 65 per cent of its foreign assets in its operations account with the French Treasury; provide for foreign exchange cover of at least 20 per cent for sight liabilities; and impose a cap on credit extended to each member country equivalent to 20 per cent of that country's public revenue in the preceding year.

The fixed parity between the euro and the CFA franc is based on the official, fixed conversion rate for the French franc and the euro set on January 1, 1999 (FF6.55957 = EURO1). As a result, the value of the CFA franc is now fixed against all 11 euro-zone country currencies. Since the CFA100 = FF1 exchange rate has remained unchanged, the CFA franc-euro exchange rate is simply CFA665.957 = EURO1.

The CFA franc is actually pegged to the euro in de facto terms from January 1999. The peg will become official in 2002 -- when France and the other euro-zone countries must completely withdraw their national currencies from circulation.

*The Comoros also pegs its currency, the Comorian franc, to the French franc and, since January 1999, to the euro. The Comorian franc was also devalued against the French franc in January 1994, by 33 per cent.

FROM： http://www.un.org/ecosocdev/geninfo/afrec/subjindx/124euro3.htm

Lesson 4 DOMESTIC BANKING

DOMESTIC BANKING

Banking plays a vital part in the economic system. As we have observed, money to invest — capital — is necessary for business, both to start new enterprises and to serve those that are already in existence. Banks provide the business community and private individuals with the facilities to save money that can be made available for investment In addition, banks themselves often make direct investments in business.

Like any other business, a bank has to make a profit. Banks attract customers by offering interest on the money that is placed in their care. One way that the banks themselves make money is by lending their funds at a higher rate of interest than they pay. Another way is by investing in stocks and other securities. Banks are also partners in many business enterprises. Bankers are included on most corporate boards of directors .

There are three types of domestic banks — that is, banks that operate within one country. The public has little contact with one of these — the investment bank. As the name indicates, the purpose of these banks is to make investments. They sometimes provide the funds that are necessary to start a new company. They are also frequently involved in mergers, when one corporation buys or combines with another. Another of their activities is underwriting issues of stock: that is, they guarantee the sale of the stock at a certain price. Investment bank funds generally come from surplus capital that has been accumulated either by individuals, by corporations, or by the banks themselves.

The second type of domestic bank is the savings bank. In general, savings banks attract \"small savers\" — men and women with small amounts of money to save. They pay a slightly higher rate of interest on time deposits than other banks. They offer even higher rates if the depositor guarantees to leave the money in the bank for a certain period of time.

Savings banks make loans almost entirely in one field — real estate. When people purchase a house, they usually make a \"down payment\" a percentage of the total price of the house. To cover the balance, they take out a loan which is called a \"mortgage\". The mortgage is paid off in monthly installments over a period of years. Savings banks are the major source for mortgage money.

The third type of bank is the commercial bank. A commercial bank might be described as an all-purpose bank. It offers its customers all the services available from a bank. In a commercial bank, depositors can choose to have either a checking or a savings account or both. Savings banks, it should be noted, do not have checking accounts. A savings hank pays a little more interest in a savings account than a commercial bank. However, many depositors find a savings account in a commercial bank convenient because they can transfer money from one account to another when the need arises.

Commercial banks are not restricted in the kinds of loans they can make. They can lend money for any purpose either to individuals or to businesses. The borrowers have to prove their ability to pay back the money. Big business could probably not survive without the services of big banking.

An important part of a commercial bank is its trust department. The trust department manages money for people who cannot or do not want to do it themselves. They provide the bank with capital that is usually available for a long period of time. Trust funds are often used to buy stocks and other securities or for other direct investments in business.

down payment n. A partial payment made at the time of purchase, with the balance to be paid later.头

款：购买时的部分付款；余额后付定金和订金不是一回事

日常生活中，凡是预先付给的、作为成交保证的钱，既可以说“订金”，也可以说“定金”。但在法律意义上，两者不能混为一谈。订金属于预先支付的一部分价款，不具备担保的性质；而“定金”是一方当事人为了保证合同的履行，向对方当事人付给的一定数量的款项，具有担保作用和证

明合同成立的作用对于“订金”而言，如果收取订金的一方不能履行约定，交付订金的一方只可要求返还订金而不能要求双倍返还。换言之，“定金”具备法律效力，而“订金”不具备法律效力，在签订合同时要特别小心。请注意以下两个术语的不同表达法：

定金：advance payment; bargain money; deposit; down payment; earnest money; front money; 订金：subscription，foregift押金

facility [] n. Often facilities 常作facilities Something that facilitates an action or process.

设备:使行动或过程容易进行的便利条件/设施。hospitals and other health care facilities医院和其它的医疗保健设施

amenity comfort convenience facility The central meaning shared by these nouns is “something

that increases physical ease or facilitates work”:

stock [] n. The number of shares that each stockholder possesses. 股份;股票(BrE. = share)

A supply accumulated for future use; a store. 贮/储藏

security [☺] n. A document indicating ownership or creditorship; a stock certificate

or bond. 有价证券:标明所有权和债权的文件；股票证书或证券，通常用复数形式：Securities are investments generally, and esp. stocks, shares and bonds which are bought as investments. 人价证券为一般的投资，尤其指为投资而购买的股票、债券等。

capital stock n. abbr: CS The total amount of stock authorized for issue by a corporation,

including common and preferred stock. 股本总额：由一个公司授权发行的股票的总数额，包括普通股和优先股

The total stated or par value of the permanently invested capital of a corporation. 股本：一个公司所申报的或票面永久性投资的总价值

shares Any of the equal parts into which the capital stock of a corporation or company is divided. 股

份: 一个合作公司或公司的股票资金被分成相等部分的任一份

funds The stock of the British permanent national debt, considered as public securities. Used with “the”. 公债：英国永久国债股票，当作公共有价证券使用。与 the连用。

bonds A certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. 债券: 由政府或公司发行的，保证到一将来明确的日期归还本金和利息的债务凭证

debenture [] n. An unsecured bond issued by a civil or governmental

corporation or agency and backed only by the credit standing of the issuer. 公司债券：由国家或政府的公司或机构发行的无担保的债券，以发行者的信誉做保障

A certificate or voucher acknowledging a debt借据：说明已收到欠款的证明或凭据

用法区别：在美国，stock 与英国的share 同义为“股票”，与capital stock亦同义；在英国

英语中，stock 与bond, debenture为同义语，即债券，包括公债券和企业债券。Stock 又统指证券。

trust fund n. Property, especially money and securities, held or settled in trust. 信托资金；托管基金：被托管的财产，尤其钱或有价证券

cover vt. ①支付，偿付It is our usual practice to arrange credit to cover the shipment at least one month ahead. 我们的惯例是至少提前一个月安排支付货款的信用证。Enclosed you will find a

cheque covering your commission on 50 m.t. bitter apricot kernels. 随函附上支付贵方50公吨苦杏仁佣金的支票一张。Please give our claim your favorable consideration and should it be acceptable to you, let us have your remittance to cover in due course. 对我们的索赔请考虑接受，如贵方可以接受，请适当时候汇款给我们付清。We hope you will see your way to arrange with your bank for an amendment to your L/C to increase the amount in order to cover the extra premium, under advice to us. 我方希望贵方设法与贵方银行安排修改贵方信用证，增加金额，以便补足附加的保险金，并望通知我方。In order to cover yourself for the expenses, you may draw on us at 90 days’ sight. 为了偿付贵方费用，贵方可向我方开具90天远期汇票。 ②保险(cover在作“保险”用时，可有下列几种用法：

cover + 险别； cover + 险别 + for + 商品； cover + 险别 + insurance；

cover + insurance + on + 商品； cover + insurance + in + 货币名称; cover + sb. 或 sth．+ against + 险别，可用被动语态； cover + insurance + against + 险别)

If goods are subject to transshipment，risks of transshipment must also be covered. 如货物必须转

船，转船险也要保。We shall cover WPA insurance. 我们将保水渍险。It is our practice to cover FPA for mild steel flat bar．对扁条低碳钢保平安险，是我们的惯例。You have to cover TPND (Theft, Pilferage and Non-Delivery 盗窃和提货不着险) insurance for our order. 你必须给我们订的货保盗窃提货不着险。Buyers are to cover the marine insurance themselves.买方要自己保海运险。 Insurance on the goods shall be covered by us for 110％ of the CIF value．货物保险将由我方按CIF价的110％投保。We shall cover TPND on your order. 我们将为你方订货保盗窃提货不着险。It is the general practice that the insurance be covered in the same currency as in the letter of credit. 一般惯例是保险应以与信用证所载的同样货币投保。We confirmed that we hold your house covered against risks for ￡20，000．我们确认给你的房子保了二万英镑火灾险。 We have covered the goods against the risk of breakage. 我们给货物保了破碎险。This insurance policy covers us against TPND. 这份保险单为我们保盗窃提货不着险。We shall cover you against SRCC.我们将为你方保罢工险。For the shipment in question，our clients request you to cover insurance against WPA (With Particular Average 单独海损赔债, 担保单独海损, 水渍险) and War Risks.对所提到的这船货，我们的客户要求你方保水渍险及战争险。Exporters and importers who constantly have large amount of business to do are always very careful in covering their shipments by appropriate insurance. 经常有大笔交易做的进口商和出口商在对他们的货物保适当的险时总是十分小心。The goods under contract No 12/45 are ready for shipment；will you please let us know immediately the details of the insurance you wish to cover for the consignment? 12/45号合同项下的货已准备好装运；请即把你方愿为这批货保险的细节通知我方，好吗？Our quotation is on CIF basis. If you prefer to have the insurance to be covered at your end, please let us know so that we may quote you C & F prices.我方的报价是CIF价，如贵方愿意由贵方保险，请通知我方以便函报C & F价。On going through the stipulations of your credit, we regret to find that in addition to FPA and War Risks, you require insurance to cover TPND and SRCC which were not agreed upon by both parties during our negotiation at the Guangzhou Fair.详细阅读了贵方信用证条款之后，我方遗憾地发现贵方在平安险及战争险之外，又要求保盗窃提货不着险及罢工险，而这些险在广交会谈判时我们双方未达成协议。Cover 后可接insurance, 而不可接coverage。

4. 1 MONEY AND BANKING

All values in the economic system are measured in terms of money. Our goods and services are sold for money, and that money is in turn exchanged for other goods and services. Coins are adequate for small transactions, while paper notes are used for general business. There is additionally a wider sense of the word \"money\covering anything which is used as a means of exchange, whatever form it may take. Originally, a valuable metal (gold, silver or copper) served as a constant store of value, and even today the American dollar is technically \"backed\" by the store of gold which the US government maintains. Because gold has been universally regarded as a very valuable metal, national currencies were for many years judged in terms of the so-called \"gold standard\". Nowadays however national currencies are considered to be as strong as the national economies which support them.

Valuable metal has generally been replaced by paper notes. These notes are issued by governments and authorized banks, and are known as \"Legal tenders''. Other arrangements such as cheques and money orders are not legal tenders. They perform the function of substitute money and are known as \"instruments of credit\". Credit is offered only when creditors believe that they have a good chance of obtaining legal tender when they present such instruments at a bank or other authorized institutions. If a man's assets are known to be considerable, then his credit will be good. If his assets are in doubt, then it may be difficult for him to obtain large sums of credit or even to pay for goods with a cheque.

The value of money is basically its value as a medium of exchange, or, as economists put it, its \"purchasing power\". This purchasing power is dependent on supply and demand. The demand for money is reckonable as the quantity needed to effect business transactions. An increase in business requires an increase in the amount of money coming into general circulation. But the demand for money is related not only to the quantity of business but also to the rapidity with which the business is done. The supply of money, on the other hand, is the actual amount in notes and coins available for business purposes. If too much money is available, its value decreases, and it does not buy as much as it did, say, five years earlier. This condition is known as \"inflation\".

Banks are closely concerned with the flow of money into and out of the economy. They often co-operate with governments in efforts to stabilize economies and to prevent inflation. They are specialists in the business of providing capital, and in allocating funds on credit. Banks originated as places in which people took their valuables for safe-keeping, but today the great banks of the world have many functions in addition to acting as guardians of valuable private possessions.

Banks normally receive money from their customers in two distinct forms: on current account, and on deposit account. With a current account, a customer can issue personal cheques. No interest is paid by the bank on this type of account, however, the customer undertakes to leave his money in the bank for a minimum specified period of time. Interest is paid on this money.

The bank in turn lends the deposited money to customers who need capital. This activity earns interest for the bank, and this interest is almost always at a higher rate than any interest which the bank pays to its depositors. In this way the bank makes its main profits.

We can say that the primary function of a bank today is to act as an intermediary between depositors who wish to make interest on their savings, and borrowers who wish to obtain capital. The bank is a

reservoir of loanable money, with streams of money flowing in and out. For this reason, economists and financiers often talk of money being \"liquid\or of the \"liquidity\" of money. Many small sums which might not otherwise be used as capital are rendered useful simply because the bank acts as a reservoir. The system of banking rests upon a basis of trust. Innumerable acts of trust build up the system of which bankers, depositors and borrowers are part. They all agree to behave in certain predictable ways in relation to each other, and in relation to the rapid fluctuations of credit and debit. Consequently, business can be done and cheques can be written without any legal tender visibly changing hands.

business establishment n. place营业处所

bank account: an arrangement with a bank that allows the customer to pay in and take out money, settle

bills, etc. the bank keeps a record of all these payments (TRANSACTIONS) in the customer’s name 银行账户：银行以个别客房的姓名记录所有交易

4. 2 BANKING

Bank is a business establishment that safeguards people's money and uses it to make loans and investments. People keep their money in banks rather than at home for several reasons. Money is safer in a bank than at home. A checking account with a bank provides an easy way to pay bills. Also, money deposited in many types of bank accounts earns additional money for the depositor. People who put money in a bank are actually lending it to the bank, which may pay them interest for the use of their funds.

Banks are an essential part of business activity. Business companies borrow from banks to buy new equipment and build new factories. People who do not have enough money to pay the full price of a home, an automobile, or some other product also borrow from banks. In these ways, banks promote the sale of a wide range of goods and services. Banking is nearly as old as civilization. The ancient Romans developed an advanced banking system to serve their vast trade network, which extended throughout Europe, Asia, and much of Africa. In 395 AD, the Roman Empire split into an eastern and a western section. The West Roman Empire fell in the late 400's, and most of its trade and financial networks were destroyed. Banking almost disappeared from Western Europe. However, the Justinian Code, a collection of laws issued in the 500's in the East Roman Empire, included many banking laws.

Modern banking began to develop between the 1200's and the 1600's in Italy. The word bank comes from the Italian word banco or banca, meaning bench. Early Italian bankers conducted their business on benches in the street. Large banking firms were established in Florence, Rome, Venice, and other Italian cities, and banking activities slowly spread throughout Europe.

A bank is not only a safe place to keep money but also a profitable one. Money placed in a savings account earns interest at a specified annual rate. Many banks also offer a special account for which they issue a document called a certificate of deposit (CD). Most CD accounts pay a higher rate of interest than regular savings accountsdo. However, the certificate must be held for a certain period, such as one or two years, to earn this high rate of interest. Banks also offer money market accounts. These accounts pay interest based on current conditions in the money market, which deals in corporation and government

short-term securities. Banks can provide people with a means of payment. People who have money in a bank checking account can pay bills by simply writing a check and mailing it. A check is a safe method of payment, and the canceled check provides written proof that payment was made. Many banks also offer credit cards as a means of payment. People can pay for their purchases at stores and other establishments by using the cards to charge sums up to a total amount determined by the bank. The bills are paid directly by the bank. The customer then receives a monthly bill from the bank to cover the amount charged. In many cases, the cardholder can choose to pay only part of the bill. However, cardholders must then pay a finance charge on the unpaid part.

Like all businesses, banks try to make a profit. They do so by borrowing money from their depositors at one rate of interest and lending the funds at a higher rate. Banks use some of the income they earn from loans to pay their employees' salaries, other operating expenses, and interest on deposits. The remaining money is their profit.

LESSON 5．INTERNATIONAL BANKING

abolish [] vt. To do away with; annul. 废除；废止

To destroy completely完全毁坏，彻底破坏

abolish, annul, extinguish 废除,取消。(Antonyms: establish, uphold, validate) abolish 指“消除长期存在的风俗、习惯”等, 如:

These superstitious practices should be abolished as soon as possible. 这些迷信做法应尽早取消。

annul 指“通过权势取消”、“宣告(法律、契约等)无效”, 如: The judge annulled the contract because one of the signers was too young. 由于签署人中有一位年纪太轻, 法官宣告合同无效。 extinguish 指“用压服性的武力等手段使之毁灭”, 如: You may extinguish a nation, but not the love of liberty. 你可以消灭一个国家, 但不能消灭对自由的热爱。 abolish

cancel, destroy, do away with, exterminate, put an end to, wipe out

Since the end of World War Ⅱ, business has become much more international than it ever was before. There is no country in the world which can supply all its own needs. Even Russia with its vast area must import grain and some raw materials. There are other countries — Japan is an example — which import raw materials on a large scale, process them, and then export manufactured products. Many countries have joined together in market associations. They have reduced or abolished tariffs among their members to create larger markets. Corporations of all kinds have established international branches to take advantage of favorable business conditions in one country or another. These multinational

corporations, as they are known, sometimes have larger resources than many nations.

Banking has become international along with the rest of business. Many banks have set up branches in financial and commercial centers all over the world. Those that do not have foreign branches work through correspondent banks. The correspondent banks customer in one country, for example, wants to make a payment in a foreign country, the bank in that country sends the appropriate instructions to its correspondent bank in the foreign country. A great deal of international banking involves the export-import business. There is a constant movement of goods from one part of the world to another. The buyers and sellers have to arrange for payment across boundaries. The most common financial instrument for accomplishing this is the letter of credit.

A letter of credit guarantees that the sellers will be paid when the goods are shipped. It also assures the buyers that they will not have to pay out their own money in advance of shipments. The bank is taking the risk for the period of time that the letter of credit is in effect. A bank issues the letter of credit to the importer on the basis of a contract for the goods. The contract gives the details of the transaction — the specifications for the merchandise, the time and method of shipment, and so on. The bank also has to make sure that both the importer and exporter are good credit risks.

When the merchandise is shipped, the exporter sends the bill of lading to the bank that issued the letter of credit. The bill of lading proves that the merchandise has been shipped. It also transfers ownership. The bank then authorizes payment to the exporter but holds the bill of lading until the merchandise is delivered to the importer. In effect the bank owns the merchandise until it actually reaches the importer and payment is made to the bank.

There are many other ways in which banks play a role in international commerce. For example, they often put importers and exporters in touch with each other. They also lend money that will be used in other countries. Sometimes the loans are made directly to foreign governments. Some are made to foreign corporations, while others are made to domestic companies for overseas operations.

In recent years, another important part of international banking has involved transactions in the currency market. This means simply buying and selling money issued by different nations. The rate of exchange between currencies used to be fixed by international agreement. Now, however, the currencies have been allowed to float; that is, their value is determined by the price they bring on the open market. The rates of exchange vary by a tiny fraction almost every day. Banks can make large profits — or suffer huge losses — dealing in the currency market.

All business enterprises, from the smallest to the largest, must keep financial records. These records are called the company's accounts. Owners of small businesses such as stores, restaurants, or gasoline stations may handle all the accounts themselves. A large corporation, on the other hand, will probably have hundreds of employees and use computers to record its accounts. The records of a company's accounts are called its \"books”. Each account is kept in a separate book known as a ledger. Every financial transaction must be posted in the books.

There are two basic bookkeeping systems. In the single-entry system, expenditures and income are

Lesson 6．BOOK KEEPING AND ACCOUNTING

recorded to show a cash balance. Most of us are familiar with single-entry bookkeeping from our own bank or household accounts. Only one entry in the books is made for each transaction in this system.

In double-entry bookkeeping, two entries are made for each transaction. The books of accounts

have two columns. The one on the left is called a debit, and the one on the right is called a credit. At one time, a debit showed an item with monetary value coming in, and a credit showed an item with monetary value going out. The item of value could be cash, but it could also be merchandise or equipment. Today, however, most companies keep several different ledgers, so the same transaction may appear as a debit in one ledger and as a credit in another. When the two columns in each ledger are added, they should be equal. When they are not equal, a mistake has been made. In the modern business world, accounting plays an even more important role than bookkeeping. Bookkeepers simply record the financial transaction, though they must understand which items are credits and which are debits. Accountants, on the other hand, set up bookkeeping systems, check the records, and help management understand the figures. Many accountants are experts in taxes, which have become more and more complicated over the years. The tax laws provide for many different kinds of deductions from taxable income. For example, there is an allowance for the depreciation of fixed assets, such as plant, machinery, and even office furniture. \"Depreciation\" means that these items become less valuable as they wear out over a period of time. One job of a tax accountant is to work out a depreciation schedule based on the average life of these items.

When a new company is formed, an accountant sets up its bookkeeping system. The accountant

must decide what books are necessary for the business. Then he or she must train the bookkeepers in the proper way to post the accounts. The process of checking the books is called an audit. Accountants from outside the company are usually called in to audit its books. Another job performed by accountants is preparing financial statements. The statements are usually required at regular intervals — quarterly, semi-annually, or annually. They show the financial condition of the company by listing its assets and liabilities. Assets include cash, property, machinery, and other items of value. Liabilities are amounts that are owed or that have been lost.

The accounting and bookkeeping department of a large corporation often has several sections. For

example, one section may handle only accounts receivable — money owed to the company. Another section will take care only of accounts payable — the money which the company owes. There may be still other sections to take care of taxes, pensions, and investments.

Bookkeeping and accounting are central to modern business. Even when computers are used, the

people who work with the accounts must be systematic, methodical, and accurate. Many of the men and women who have risen to top management positions have had a background in bookkeeping and accounting.

Lesson 7．STOCK EXCHANGE

stock exchange: a market where stocks and shares are bought and sold under fixed rules, but

at prices controlled by supply and demand 证券交易所

The main international stock exchanges are based in the USA, Japan, and the UK.主要国际证券交易所设在美国、日本和英国。

道琼斯指数The Dow Jones Indexes 纳斯达克The NASDAQ Indexes 恒生指数HK Hang Seng Index 日经指数NIKKEI 225 INDEX 金融时报（证交所100家股票）指数the Financial Times-Stock Exchange 100 Share Index

中国股市分为上证综合指数Shanghai Composite Index和深圳成份指数Shenzhen Sub-Index The English words associated with stock:

Stock Exchange Automatic Exchange Facility: a computerized system on the International Stock Exchange that automatically records and completes a transaction 证券交易所自动交易系统 Stock Exchange Automated Quotations System: a computerized system on the International Stock Exchange that automatically records and sets the price for securities 证券交易所自动报价系统 the Stock Exchange Daily Official List: a detailed record issued by the International Stock Exchange each day, showing prices of shares and securities and details of companies trading on the Stock Exchange 证券交易所每日正式牌价表：国际证券交易所每日发布，显示上市股票和证券的价格及上市公司详情

stockholder = shareholder：a person who owns shares in a company and is, therefore, a member of the company 股东

stockbroker : a person or organization that buys and sells stock and shares, either by acting as a PRINCIPAL or on behalf of clients in return for a fee (BROKERAGE) 证券经纪人/商：以本人身份PRINCIPAL或代表委托人买卖证券并收取经纪佣金

HISTORY OF THE EXCHANGE

Many people assume the current trend towards market pricing is merely a return to mankind’s natural inclination towards a barter and negotiation system. In fact, there is little historical evidence that barter or exchanges were used widely in trade until the 19th and 20th centuries.

Autocratic rulers usually governed economic conditions quite firmly, controlling the money supply and prices. In the Renaissance, the kings of England ordered a fair price to manage inflation and the debasement of coinage.

Asian cultures have also had long traditions of fair pricing governed by imperial rulers, such as in the Song Dynasty of China in the 10th through 13th centuries. Accounts from the Middle Ages report that Syrian and Jewish traders were accustomed to freely negotiated prices, and were surprised to see the price tags commonly used in Italian markets.

Before the advent of free trade in the 18th century, auctions and exchanges were used primarily to sell high-value capital goods — such as wives, slaves, land and livestock — which were exchanged among members of the ruling and capitalist classes.

The use of exchanges to set prices of commodity goods was unheard of among common people. Over the past several hundred years, the use of exchange pricing has gained increasing popularity in

Western societies. The 16th century saw the establishment of stock exchanges throughout Europe. The first American exchanges were established in New York City in the early 18th century: the association which was to become the New York Stock Exchange was originally established in 1792. The Chicago Board of Trade, the first commodity exchange in the US, was established in 1848. The blossoming of exchanges and market pricing has coincided with the growth of personal political freedom. Adam Smith, the 18th century English economist, was an important catalyst of the free market movement. Smith's writings in Wealth of Nations linked the political freedom of individuals to the potential for creating wealth in a market economy. The concept of free trade began to be widely exercised in Europe with the abolition of Prussian tariffs in 1819.

The continual improvement in communications technology in the 19th and 20th centuries has accelerated the ability of exchanges to set market prices. The first commercial uses of telegraphy and radio were links between stock exchanges. The first Trans-Atlantic telegraph cable was laid to link the New York and London stock exchanges in 1851. By the 1920s the exchanges were also linked by private telephone connections.

The improvement of paper manufacturing and high-volume printing caused tremendous growth in the distribution of daily newspapers, which were the only form of mass communication . In 1865 the circulation of the London Times was less than 50,000; by 1900 the paper's circulation was over one million.

The convergence of paper-based communication and the growth of the United States economy after World War I enabled the general public to begin to participate in a stock exchange for the first time. The 1920s stock boom was fuelled by information being rapidly disseminated to the public using a combination of telegraphy and newspapers. Stock brokers in many cities entered orders to exchanges by telegraph. Irresponsible trading and capitalization practices combined with wild speculation generated the run on the United States' exchanges that helped to trigger the Great Depression of the 1930s.

The modern electronic computer (circa 1950s) and especially the microprocessor (1970s) further increased the efficiency, reach and capacity of stock, commodity and other exchanges.

In 1979 the London Stock Exchange moved to an all-electronic system and today the NASDAQ stock exchange is the second largest exchange in the world and it exists entirely in the memory of the NASD computer system.

The Internet has put its own spin on the growth of exchanges. The Internet allows anyone connected to the network to operate a server that can be designed to function as an exchange. Entrepreneur Jerry Kaplan founded ONSALE in 1995 as an enterprise that would create a market for surplus goods and sell them at auction to anyone who would log on to the ONSALE web site. When reflecting over the history of exchanges and auctions, it appears that market pricing is actually a relatively recent phenomenon in human economic endeavors.

The factors that control the ability for people to set prices are human freedom, the speed and richness of communication and the strength of an exchange.

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