The international monetary system

Currency is any product that is able to carry cash as a means of exchange in the international market. The initiative on Euro, Dollar, Yuan Uncertainties is Scenarios on the Future of the World International Monetary System. The main world currency.

Рубрика Международные отношения и мировая экономика
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Contents

  • Introduction
  • Chapter 1. International monetary system
  • 1.1 Currency and its types
  • Chapter 2. The main world currency - Euro, Dollar, Yuan
  • 2.1 Euro
  • 2.2 Dollar
  • 2.3 Yuan
  • Chapter 3. Euro, Dollar, Yuan today and Scenarios on the Future of the International Monetary System
  • Conclusion
  • Bibliography

Introduction

The initiative on Euro, Dollar, Yuan Uncertainties - Scenarios on the Future of the International Monetary System began in early 2011 against a background of increasing concerns among many Forum members and constituents about the state of the global economy. Currency volatility and fiscal crises have consistently featured as key global risks in the World Economic Forum's Global Risks Report in past years. Over the course of 2011, the escalating sovereign debt crisis in Europe, discussions around the sustainability of US debt levels and questions around economic reforms in China have exacerbated the challenges to global economic stability. In this context, the Forum has mobilized key resources, including its Strategic Foresight, Europe, Financial Services, Global Risksand Global Agenda Council teams, to initiate a process aimed at supporting stakeholders in better understanding how these uncertainties may play out, and how stakeholders can prepare for plausible yet challenging alternative scenarios.

This report is the synthesis of the insights generated in a process engaging over 200 policy-makers, private sector leaders and academic experts through discussions and a series of high-level workshops in Brussels, New York, London, Beijing, Davos-Klosters and Dalian. This dynamic interaction complements a number of related Forum initiatives including those of the Global Agenda Councils on the International Monetary System, Fiscal Crises and Institutional Governance Systems, the B20 Task Force on the Future of the International Monetary System, as well as the Remodelling Europe Initiative which intends to deepen policy discussions on how to provide a more stable economic environment and increase the growth outlook for Europe. We hope that you find the insights informative and thought-provoking, and that this report will continue to serve as the basis for productive strategic conversations between stakeholders. The way policy-makers deal with these internal adjustment challenges will significantly influence the context for the future of the international monetary system. The dominant narrative of how these adjustments will play out is that the continued growth of imbalances will progressively undermine international faith in the US dollar, leading to a gradual rebalancing towards the euro and eventually the yuan. The result will be a multipolar “tripod" of reserve currencies, which under cooperative management, creates a self-supporting system that is more resilient to the build-up of imbalances than a system characterized by a single reserve currency.

Chapter 1. International monetary system

At the base of the international macroeconomics is the present international monetary and financial system, which indirectly reflects the relationships between the various actors in the international economy.

The international monetary and financial system (international monetary system) - enshrined in international agreements form of monetary and financial relations that operate independently or serving international movement of goods and factors of production.

Monetary and financial system is a necessary link that lets you develop international trade, financial instruments and movement of factors of production. It consists of two groups of elements:

1. Foreign exchange elements, namely the national currency, the conditions of mutual convertibility and circulation, exchange parity exchange rate and the national and international modes of regulation.

2. Financial elements, namely the international financial markets and trading mechanisms specific financial instruments - currency, securities, loans.

Another element can be considered international payments, which serve the movement of goods, services and factors of production and financial instruments.

1.1 Currency and its types

Currency - is any product that is able to carry cash as a means of exchange in the international market. In a narrow sense - is the cash portion of money that circulates between countries. [1]

The types of Currencies:

1. According to holder:

· National currency (legal tender of a country that used in the country)

· Foreign currency (legal tender of other countries, legally or not legally available in her country.)

2. According the level of use in the international monetary system:

· Reserve currency (include only those in which governments hold liquid international reserves (USD, Euro, Swiss Franc, Japanese Yen)

· Currency free use (include all those affected by major international agreements (Ruble, Indian rupee, Mexican peso, Brazilian real, Chinese Yuan)

3. According the stability of currency exchange rate:

· Hard currency (exchange rate stable and depends on macroeconomic fluctuations)

· Not stable currency (exchange rate changes quickly and unpredictably)

4. According the degree of convertibility

· Free convertible

· Convertible for current transactions

· Convertible capital transactions

· Internally convertible

· Externally convertible

Economic globalization is the increasing economic integration and interdependence of national, regional and local economies across the world through an intensification of cross-border movement of goods, services, technologies and capital. [1] Whereas globalization is a broad set of processes concerning multiple networks of economic, political and cultural interchange, contemporary economic globalization is propelled by the rapid growing significance of information in all types of productive activities and marketization, and by developments in science and technology. [2]

Economic globalization primarily comprises the globalization of production and finance, markets and technology, organizational regimes and institutions, corporations and labour. [3]

While economic globalization has been expanding since the emergence of trans-national trade, it has grown at an increased rate over the last 20-30 years under the framework of General Agreement on Tariffs and Trade and World Trade Organization, which made countries gradually cut down trade barriers and open up their current accounts and capital accounts. [2] This recent boom has been largely accounted by developed economies integrating with less developed economies, by means of foreign direct investment, the reduction of trade barriers, and in many cases cross border immigration.

Economic growth accelerated and poverty declined globally following the acceleration of globalization.

Per capita GDP growth in the post-1980 globalizers accelerated from 1.4 percent a year in the 1960s and 2.9 percent a year in the 1970s to 3.5 percent in the 1980s and 5.0 percent in the 1990s. This acceleration in growth is even more remarkable given that the rich countries saw steady declines in growth from a high of 4.7 percent in the 1960s to 2.2 percent in the 1990s. Also, the non-globalizing developing countries did much worse than the globalizers, with the former's annual growth rates falling from highs of 3.3 percent during the 1970s to only 1.4 percent during the 1990s. This rapid growth among the globalizers is not simply due to the strong performances of China and India in the 1980s and 1990s-18 out of the 24 globalizers experienced increases in growth, many of them quite substantial." [15]

According to the International Monetary Fund, growth benefits of economic globalization are widely shared. While several globalizers have seen an increase in inequality, most notably China, this increase in inequality is a result of domestic liberalization, restrictions on internal migration, and agricultural policies, rather than a result of international trade. [15]

Poverty has been reduced as evidenced by a 5.4 percent annual growth in income for the poorest fifth of the population of Malaysia. Even in China, where inequality continues to be a problem, the poorest fifth of the population saw a 3.8 percent annual growth in income. In several countries, those living below the dollar-per-day poverty threshold declined. In China, the rate declined from 20 to 15 percent and in Bangladesh the rate dropped from 43 to 36 percent. [15]

Globalizers are narrowing the per capita income gap between the rich and the globalizing nations. China, India, and Bangladesh, once among the poorest countries in the world, have greatly narrowed inequality due to their economic expansion. [15]

The global financial system includes three types of financial markets - stock, currency and commodity. The stock market operates securities: shares, bills, certificates of deposit, bonds, checks. A large proportion of financial transactions in commodity market comes from oil, gold, sugar, grain. In the foreign exchange market operations performed with world currencies - the US dollar (USD), euro (EUR), British pound (GBP), Swiss franc (CHF), Chinese Yuan and Japanese yenoyu (JPY) and so on.

In the global financial system, there are three main groups of participants:

· banks and multinational companies;

· international portfolio investors (pension, insurance, investment funds);

· international official borrowers (government and municipal authorities, international and regional organizations) [1].

currency international monetary system

Chapter 2. The main world currency - Euro, Dollar, Yuan

The rapid integration of global trade and capital flows over the past decades has made the links that connect different parts of the world economy ever more central to global prosperity. Yet the practices and institutions that regulate these links - the international monetary system - as well as the main international currencies that underpin this system are increasingly challenged.

Against this backdrop, it is clear the current dollar-based international monetary system needs to evolve. But how it will evolve is highly uncertain. The widespread view is that the world is moving towards a multipolar currency system based on the euro, dollar and yuan. But each of these currency areas faces the need for significant internal adjustments that constrain their future international roles:

The Eurozone is plagued by a weak governance structure, fragmented sovereign debt markets and an uncertain growth outlook.

The United States must contend with a dim fiscal position, a persistently large trade deficit and a political system at risk of resorting to protectionism.

If the yuan is to rise to international significance, China will have to ensure continued growth, resolve systemic weaknesses in its financial system and address limitations stemming from its system of capital controls.

These adjustment processes play out as complex two-level games. While at the global level synchronous and coordinated adjustments between individual players may be desirable, the challenges they face at the national and regional levels may direct them to take decisions that can lead to sub-optimal global outcomes.

2.1 Euro

The euro (sign: €; code: EUR) is the currency used by the Institutions of the European Union and is the official currency of the eurozone, which consists of 18 of the 28 member states of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. [3] [4] Lithuania is adopting the euro as its official currency in place of the lithuanianlitas on 1 January 2015. [5] The currency is also officially used by a further four European countries, and unilaterally by two others, and is consequently used daily by some 334 million Europeans as of 2013. [6] Outside of Europe, a number of overseas territories of EU members also use the euro as their currency.

Additionally, 210 million people worldwide as of 2013-including 182 million people in Africa-use currencies pegged to the euro. The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. [7] [8] [9] As of August 2014, with more than €995 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U. S. dollar. [note 15] Based on International Monetary Fund estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world. [10]

The name euro was officially adopted on 16 December 1995. [11] The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1 (US$1.1743). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members. [12] While the euro dropped subsequently to US$0.8252 within two years (26 October 2000), it has traded above the U. S. dollar since the end of 2002, peaking at US$1.6038 on 18 July 2008. [13] Since late 2009, the euro has been immersed in the European sovereign-debt crisis which has led to the creation of the European Financial Stability Facility as well as other reforms aimed at stabilising the currency. In July 2012, the euro fell below US$1.21 for the first time in two years, following concerns raised over Greek debt and Spain's troubled banking sector. [14] As of November 2014, the euro-dollar exchange rate stands at ~ US$1.25. [15]

The euro is the sole currency of 18 EU member states: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. These countries constitute the "eurozone", some 332 million people in total as of 2013. [6]

With all but two of the remaining EU members obliged to join, together with future members of the EU, the enlargement of the eurozone is set to continue. Outside the EU, the euro is also the sole currency of Montenegro and Kosovo and several European microstates (Andorra, Monaco, San Marino and the Vatican City) as well as in four overseas territories of EU members that are not themselves part of the EU (Saint Barthйlemy, Saint Pierre and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the euro outside the EU affects nearly 3 million people.

It is also gaining increasing international usage as a trading currency, in Cuba, [7] North Korea, and Syria. [8] There are also various currencies pegged to the euro (see below). In 2009, Zimbabwe abandoned its local currency and used major currencies instead, including the euro and the United States dollar. [9]

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e. g., credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also theoretically removes exchange rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot financial crisis means that the situation is not quite so simple. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones.companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone. However, although transaction costs were reduced, some studies have shown that risk aversion has increased during the last 40 years in the Eurozone.

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e. g., credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also theoretically removes exchange rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot financial crisis means that the situation is not quite so simple. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones.companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone. However, although transaction costs were reduced, some studies have shown that risk aversion has increased during the last 40 years in the Eurozone.

Problems of the Euro

· Interest rates not suitable for whole Eurozone. A common monetary policy involves a common interest rate for the whole eurozone area. However, the interest rate set by the ECB may be inappropriate for regions which are growing much faster or much slower than the Eurozone average. For example, in 2011, the ECB increased interest rates because of fears of inflation in Germany. However, in 2011, southern Eurozone members were heading for recession due to austerity packages. The higher interest rates set by the ECB were unsuitable for countries such as Portugal, Greece and Italy.

· The Euro is not an optimal currency area. If a state in the US, such as New York,was in recession, workers in New York could move to New England and get a job. However, in the Eurozone this is much more difficult; it involves moving country and possibly learning a new language. There are more barriers to the movement of labour and capital within a diverse region like Europe. Therefore, an unemployed Greek can't easily relocate to Germany.

· Limits Fiscal Policy. With a common monetary policy it is important to have similar levels of national debt, otherwise countries may struggle to attract enough buyers of national debt. This is a growing problem for many Mediterranean countries like Italy, Greece and Spain who have large national debts and rising bond yields.

· Lack of Incentives. It is argued that being a member of the Euro protects a country from a currency crisis. Therefore, there is less incentive for countries to implement structural reform and fiscal responsibility. For example, in good years Greece was able to benefit from very low bond yields on its debt because people felt Greek debt would be secured by rest of Europe. But, this wasn't the case, and Greece were lulled into a fall sense of security.

· No scope for Devaluation. Since the start of the Euro, several countries have experienced rising labour costs. This has made their exports uncompetitive. Usually, their currency would devalue to restore competitiveness. However, in the Euro, you can't devalue and you are stuck with uncompetitive exports. This has led to record current account deficits, a fall in exports and low growth. This has particularly been a problem for countries like Portugal, Italy and Greece.

·

This shows the effects of Eurozone members becoming uncompetitive. Very high current account deficits.

· No Lender of Last Resort. The ECB is unwilling to buy government bonds if there is a temporary liquidity shortage. This makes markets more nervous about holding debt from eurozone economies and precipitates fiscal crisis. See: Problems of Italy - why Italian bonds increased despite having a much lower budget deficit than UK.

Italy bond yields rose despite a primary budget surplus

· Deflationary Bias I would argue there is a deflationary bias in the Eurozone which increases the risk of recession and higher unemployment

Eurozone members have seen a rise in unemployment.

· Divergence in bank rates. In theory, the Eurzone creates a common interest rate. However, in the credit crisis of 2010-13, we see rising bank rates for peripheral Eurozone countries, like Italy and Spain. Small and medium sized firms faced higher borrowing costs than in 2005, even though the ECB cut the main base rate. This suggests that the ECB was unable to loosen monetary policy when needed

2.2 Dollar

The United States dollar (sign: $; code: USD; also abbreviated US$ and referred to as the U. S. dollar, American dollar or US Dollar) is the official currency of the United States and its overseas territories. It is a Federal Reserve Note and consists of 100 smaller cent units. [4]

The U. S. dollar is fiat money. It is the currency most used in international transactions and is the world's most dominant reserve currency. [14] Several countries use it as their official currency, and in many others it is the de facto currency. [15] Besides the United States, it is also used as the sole currency in two British Overseas Territories: the British Virgin Islands and the Turks and Caicos islands.

The dollar has a special place in the global economy, being essentially the first truly international currency.

First world monetary system spontaneously formed in the XIX century after the industrial revolution based on gold monometallism in the form of the gold standard. Legally, it was framed intergovernmental agreement at the Paris Conference in 1867 that recognized the gold the only form of world money. In this system belonged dollar in 1837 received the gold content. The currency freely convertible into gold. Gold was used as generally recognized world money. Gradually the gold standard outlived its usefulness, because did not meet the increased scale of economic relations and conditions regulated market economy. The First World War was marked by the crisis of the world monetary system. The gold standard ceased to function as money and monetary system.

World War II monetary system was legally intergovernmental agreement reached at the Genoa international economic conference in 1922. Its foundation was gold and foreign currencies. Conversion of currencies into gold was carried out not only directly (US, France, Britain), but also indirectly through foreign currency (Germany and another 30 countries whose monetary system based on gold exchange standard). National credit money were used as international payment and reserve funds. However, in the interwar period reserve currency status has not been officially confirmed by either in one currency and the pound sterling and the US dollar disputed leadership in this area. The Great Depression of 1929-1933. sharply devalued dollar, its gold content decreased by more than 40%.

World War II led to the deepening crisis Genoa monetary system. Anglo-American experts in 1941 rejecting the idea of returning to the gold standard, sought to develop principles of a new world monetary system that can ensure economic growth and limit the negative social and economic consequences of the economic crisis. The desire to secure a dominant position US dollar in the global monetary system is reflected in terms GD White and formed the basis of the so-called Bretton Woods monetary system, which has become a third world monetary system. Was introduced gold exchange standard based on gold and two reserve currencies - the US dollar and to a much lesser extent pound sterling. Gold continued to be used as an international payment and reserve means.

Building on its increased monetary and economic potential and gold reserves, US dollar equated to gold to secure for him the main reserve currency status. For this purpose, the US Treasury has continued to negotiate a dollar for gold to foreign central banks and government agencies in the official price, established in 1934, Based on the gold content of its currency (USD 35.1 troy ounce equal to 31.1035 grams). This exchange applied only to member states of the International Monetary Fund (IMF), represented by their central banks.

For normal functioning gold standard required the constant increase in reserves to meet the needs of economic expansion and the corresponding payment relations in global economic growth and support optimal ratio between gold and currency (dollar) reserves, so that the price of gold was equilibrium. Failure to meet these conditions naturally had to lead to the collapse of the Bretton Woods monetary system. Lack of reserve money (dollars, pounds sterling, gold) led to inhibition of world trade and excess - to destabilize the system of fixed exchange rates. High growth rates of foreign exchange reserves, compared with growth rates of gold reserves over time component questioned the ability of the US to keep the convertibility of the dollar in reserves by central banks set official price. In the 60's Dollar virtually monopolized the sphere of international payments, which is reflected in the growth of its share in the international reserves of the state from 9% in 1950 to 75% in 1970.

2.3 Yuan

"Idealist buys euro realist - dollars, and the truly wise man chooses the yuan." This phrase may have become in some measure winged circulated among financial analysts, but today is used for almost all those who somehow interested in keeping the money.

China is in good climatic conditions, has a lot of cheap labor, and has a strong power to the people with the ideas and the use of harsh measures in dealing with demographic and economic issues. The country ranks first in the world in terms of population, which amounts to more than 1.3 billion people. Residents of the country are different discipline and hard work. Low wages and favorable conditions for the functioning of enterprises in export processing zones, a positive impact on the competitiveness of products, where producers from developed countries to move production of labor-intensive goods. This contributes to the specialization of the Chinese economy in the production of series of industrial products. Industry plays an important role in the economy. China is the largest exporter of industrial products in the world. Its share of world exports is around 12%, surpassing the US and Japan.

Opinions of experts converge. Perhaps the West, more than 300 years holding in their hands the reins of world economic processes of the Board, will relinquish the position of the rising Eastern powers - China and the yuan will replace the dollar as the world's main reserve currency within the next decade.

The yuan is the base unit of a number of former and present-day Chinese currencies, and usually refers to the primary unit of account of the renminbi, the currency of the People's Republic of China. [1] It is also used as a synonym of that currency, especially in international contexts - the ISO 4217 standard code for renminbi is CNY, an abbreviation of “Chinese yuan”. (A similar case is the use of the terms sterling and pound to designate the British currency and unit.)

A yuan (Chinese: Њі; pinyin: yuбn) is also known colloquially as a kuai (Chinese: ?; pinyin: kuаi; literally: "lump"; originally a lump of silver). One yuan is divided into 10 jiao (Chinese: Љp; pinyin: jiao; literally: "corner") or colloquially mao (Chinese: –С; pinyin: mбo "feather"). One jiao is divided into 10 fen (Chinese: •Є; pinyin: fзn; literally: "small portion").

The symbol for the yuan (Њі) is also used in Chinese to refer to the currency units of Japan and Korea, and is used to translate the currency unit dollar as well as some other currencies; for example, the US dollar is called Meiyuan (Chinese: ”ьЊі; pinyin: Mмiyuбn; literally: "American yuan") in Chinese, and the euro is called Ouyuan (Chinese: ‰ўЊі; pinyin: Фuyuбn; literally: "European yuan"). When used in English in the context of the modern foreign exchange market, the Chinese yuan (CNY) refers to the renminbi (RMB) which is the official currency used in mainland China.

In 1889, the Yuan was equated at par with the Mexican peso, a silver coin deriving from the Spanish dollar which circulated widely in South East Asia since the 17th century due to Spanish presence in the region, namely Philippines and Guam. It was subdivided into 1000 cash (Chinese: •¶; pinyin: wйn), 100 cents or fen (Chinese: •Є; pinyin: fзn), and 10 jiao (Chinese: Љp; pinyin: jiao, cf. dime). It replaced copper cash and various silver ingots called sycees. The sycees were denominated in tael. The yuan was valued at 0.72 tael, (or 7 mace and 2 candareens). [3]

Banknotes were issued in yuan denominations from the 1890s by several local and private banks, along with the Imperial Bank of China and the "Hu Pu Bank" (later the "Ta-Ch'ing Government Bank"), established by the Imperial government. During the Imperial period, banknotes were issued in denominations of 1, 2 and 5 jiao, 1, 2, 5, 10, 50 and 100 yuan, although notes below 1 yuan were uncommon.

The earliest issues were silver coins produced at the Guangdong mint, known in the West at the time as Canton, and transliterated as Kwangtung, in denominations of 5 cents, 1, 2 and 5 jiao and 1 yuan. Other regional mints were opened in the 1890s producing similar silver coins along with copper coins in denominations of 1, 2, 5, 10 and 20 cash. [3] Other regional mints were opened in the 1890s. The central government began issuing its own coins in the yuan currency system in 1903. Banknotes were issued in yuan denominations from the 1890s by several local and private banks, along with banks established by the Imperial government.

The central government began issuing its own coins in the yuan currency system in 1903. These were brass 1 cash, copper 2, 5, 10 and 20 cash, and silver 1, 2 and 5 jiao and 1 yuan. After the revolution, although the designs changed, the sizes and metals used in the coinage remained mostly unchanged until the 1930s. From 1936, the central government issued nickel (later cupronickel) 5, 10 and 20 fen and Ѕ yuan coins. Aluminium 1 and 5 fen pieces were issued in 1940.

One yuan is divided into 10 jiao which, in turn, are divided into 10 fen. There are coins in denominations of 1, 2, 5 fen.

Issuing institution - the People's Bank of China (instituted December 1, 1948).

From 1994 to July 2005 the yuan was tightly tied to the US dollar exchange rate of 8.28: 1.

Prior to the beginning of the XX century the basic monetary unit in China was a silver liang of 10 and 100 maofenyam. For larger payments there were also silver ingots weighing up to 50 liang. In rural areas, were walking the ancient copper coins - tsyani, or caches. Widespread have notes and coins of different foreign countries.

Yuan began to be produced in the form of silver coins in 1835. However, Liang continued to be in circulation as currency. In lyanah numbered duties (until 1930) and taxes (until 1933).

In 1933 a law was passed on unification of the monetary system, but it has not led to the establishment of a single currency. Still widespread money had various foreign governments and local money.

Until 1935 in China actually acted silver standard. China's currency fluctuated depending on the international price of silver. On 15 October 1934 the yuan has departed from the value of silver in the world market due to the establishment of duty on silver exported from China.

In 1935 was a monetary reform, silver yuan were withdrawn from circulation and replaced by paper - "Fabi". It was announced on the refusal of the silver standard and the transition to a currency based on gold, but without a fixed gold content of the yuan. Excessive issue of paper money led to inflation of the yuan.

Monetary Reform in 1948 the gold content of the yuan was established in 0,22217g pure gold and issued new paper money - "gold yuan", which exchanged "Fabi" (3 million Fabi 1 "gold yuan"). The official exchange rate to the US dollar was set at 4 "gold yuan" to the dollar, but already 12 December 1948 it was devalued to twenty per dollar.

As reunification areas liberated Communist People's Liberation Army of China, there was a merger of local banks. In 1948 was created the People's Bank of China. Withdrawn from circulation all local currency issued in different liberated areas, and replaced with banknotes of the People's Bank of China - renminbi (yuan).

After the founding of the PRC currency circulation has been put under strict government control throughout the country. For each district set the exchange rate of local money on the yuan, taking into account their purchasing power and social status of their holders.

In June 1969 it was officially announced the Latin name of the Chinese money - "Renminbi" (Renminbi - "the people's money"), which is a unit of the yuan. Until 1974 the yuan against foreign currencies was established mainly through the pound sterling, as well as the Hong Kong dollar. Since August 1974 was introduced daily quotation of RMB against the US dollar and other currencies on the basis of a basket of currencies.

Since 1994, the Chinese authorities have preserved the yuan exchange rate of $ 1/8.27 yuan. Recently, however, China is under increasing pressure from the EU, Japan and the United States in particular, insisted on the liberalization of the renminbi. According to them, the yuan is undervalued and as a result of Chinese goods gain additional competitive advantage.

In 2005, China abandoned the peg of the yuan to the dollar and raised the rate of national currency by 2%. The yuan will now be determined on the basis of its relation to a basket of several currencies.

According to Chinese experts peg to a basket of currencies will make the yuan more responsive to the global economic situation, but it does not create a threat to the stability of the financial system. By July 2008 the yuan gradually rose by 21.6% and from that time remains very stable at 6,82-6,84 yuan per dollar. On 4 November 2009 the Russian currency rate was 4.29 rubles per 1 yuan. On November 22, 2010 exchange rate of the Russian currency was already 4.66 rubles per 1 yuan.

According to the World Bank, in 2003 the purchasing power of the yuan was approximately $ 1/1.8 yuan.

Chapter 3. Euro, Dollar, Yuan today and Scenarios on the Future of the International Monetary System

On the international currency market affect high dynamics and migration flows of capital. Changing factors that effecton the creation of the exchange rate and market structure. The exchange ratio is increasingly determined by the movement of financial flows, changes in rates of national currencies depend on the relative profitability of financial instruments. There is a coincidence and the estimated current exchange rate, which can be explained by the financial market close relationship with the real sector. This means that the market exchange rate, which is influenced by financial flows, also reflects the relative competitiveness of the national economy.

By the time the euro increased productivity in the US due to the inflow of capital in high-tech manufacturing and high economic growth stimulated by the rise in stocks and the dollar strengthened and its competitiveness. In 1999 became evident correlation between the dynamics of the dollar (and the euro) and the stock price index for US stock (European) market. All clearly seen growing role in shaping of the stock price of the dollar. The reason for this predominance of market shares in the market of government securities and changes in benefits residents.

At the turn of the millennium the United States remained the most attractive spheres of foreign capital, which directed most of the world flows. In 1999-2000, 62% of the capital exported from countries with positive current account balance went to the United States. In 1999 completed the establishment of the euro zone and the single currency was launched in non-cash transactions from the rate of 1/1.184 USD It had no significant impact on the inflow of foreign capital in the US, and the dollar continued to grow now in euros.

In addition to capital flows, exchange rates reflects the movement and outflow of capital from domestic markets, which reduces the exchange rate and therefore increases the rate on opposing currencies. In 1998-2000. there was a net outflow of capital from Europe, which contributed to the weakening of the euro in 2001 he continued. European and other investors continued to hope for a quick recovery of the US economy and the expansion of the financial market.

Foreign investors bought a significant number of European shares, increased purchases of debt securities of the euro area, since the difference in yield between them and US securities declined.

Since June 1999 in June 2000 the main feature of the global currency market was weakening of the euro against the dollar. During 2000-2001, the dollar continued to strengthen., the euro weakened. In 2001 US continued to absorb the lion's share of global capital flows.

The index of the dollar against the SDR for the years 1998-2000 rose by 7.5%, to 2001 another 3.5% due to higher net international demand for American assets. This happened despite a greater decrease in economic growth in US GDP than in other major countries. Despite the record current account deficit the US dollar held high, due to capital inflows, which stimulated the conviction that economic growth will resume, and corporate profitability will increase.

Since 2004 US economy there has been a decline in the dollar began to decline, despite the fact that the influx of foreign capital in the US in January 2004 reached its historical peak.

At this time, the position of the euro increasingly strengthened against the dollar.

With respect to our country, strengthening the position of the euro contributes to higher prices of goods imported from the EU.

In parallel with these processes is the growth of the yuan.

Of course, the last 10 years, China's economy shows more than excellent results. From the point of view of economic power of the issuing country, the Chinese yuan has all the chances. However, things cannot happen so quickly, because, firstly, for what would make a currency reserve, it is necessary to lift restrictions on the convertibility and the Chinese currency is partially convertible. Second, the dollar is too much tied, including foreign exchange reserves in most countries.

Another factor contributing to the prosperity of the yuan, is that the yuan is undervalued. Hence, the yuan has a chance to grow in the future. On 11.02.2012 the RMB exchange rate is about 16 US cents. The fact that the yuan is undervalued, talked for a long time. Despite the fact that the Americans did not like it and they demanded that China stop understate the rate of RMB, China, it was profitable, because he worked for export. Many economists, including representatives of the People's Bank of China, argue that a stronger yuan to China is not needed. Increasing the rate of the national currency, China will automatically reduce the competitiveness of their exports, which have a negative impact on the economy as a whole. Despite ultimatums Western countries, China will continue to adhere to its policy towards the national currency. Recent years have seen a gradual strengthening of the yuan against the dollar, but it is precisely the extent and pace of the theme that benefit the Chinese economy.

In late 2008, China announced its intention to make the yuan currency in trade settlements between the Chinese provinces of Yunnan and Guangxi and the member countries of ASEAN - Association of South-East Asia. And today there yuan has actually plays the role of reserve currency. Vietnam, Indonesia, and in other countries in Southeast Asia, people accumulate yuan, not dollars.

It should also be noted that Chinese banks are willing to give foreign companies cheap loans in RMB, the purpose of which is to spread the yuan over the world. So, they try to make the yuan relatively affordable and desirable currency trading, loans and as a result - make China a leader in the global financial market.

Also, not so long ago the authorities allowed a branch of China Bank of China in New York to take deposits in yuan. Now US investors can buy yuan for their needs. This is largely due to the internationalization of the yuan, China's wish to make the yuan popular currency.

The next point is the reduction of Chinese exports, against which the yuan can rise. The fact that today is not the best of times for the economy, export-oriented. China gradually begins to shift to the domestic market. If the state is set to export - it needs cheap national currency. If the domestic market, it is better to have an expensive currency. Consequently, the yuan will rise in value.

According to the results of World Economic Forum (6.2012) there are scenarios for the international monetary system in 2030 are as follows:

Reversion to Regionalism

Fiscal challenges in the Eurozone and the United States go unaddressed as policy-makers turn inward.

Slowing global growth and decreased demand for exports make adjustments to China's growth model more challenging, leading to stalling economic reforms.

Trade and financial flows decrease at the global level as countries increase their focus on regional economic ties.

G2 Rebalancing

Political deadlock and stagnating growth in Europe lead to a gradual disintegration of the European Monetary Union.

Structural reforms lead to a gradual unwinding of imbalances between the G2: the United States and China.

Continued high consumption in the United States and the growth of China's consumer economy place pressures on natural resource sustainability.

Reconciling a Two-speed World

While Europe successfully reforms its economic governance and emerges as a fiscal union, markets focus on the US's unsustainable fiscal situation.

Emboldened by strong growth, China actively pursues the use of the renminbi (RMB) for trade among emerging markets.

An alternative monetary order emerges with the RMB at its core, and questions emerge about how to reconcile this two-speed world.

These scenarios are based on a series of strategic conversations among industry, public policy and academic leaders from around the world. They are not intended to be mutually exclusive predictions or the only possible outcomes. They provide a tool to foster strategic thinking about these challenges, to stretch the boundaries of what is perceived as possible and to open up new avenues of potential solutions.

Currency Uncertainties

A Business Issue

This section begins by explaining why uncertainties related to international currencies create important challenges for businesses, and calls for an assessment of possible alternative future developments of the international monetary system.

In a globalized economy, an orderly international flow of money is essential. If these flows are uncertain or prone to disruption, global prosperity can be undermined. In recent years, the vulnerabilities of this international monetary system have become increasingly apparent through persistent global imbalances, instability within the Eurozone and a series of increasingly global financial crises.

The international monetary system consists of conventions, policies and institutions governing international payments, the choice of exchange rate regimes and the supply of reserves. It creates an environment where international currencies facilitate the exchange of goods and services, the accumulation of savings, price setting and calibration as well as the denomination of balance sheets for both public and private actors. It also allows countries to run deficits in their external accounts and should ideally contribute to a gradual rebalancing of these external positions.

Uncertainty around the smooth operating or expected outcomes of these functions can have significant implications for business, in particular when exchange rate volatility affects costs and prices. This may impinge on investment decisions and reduce opportunities for growth and job creation - a dynamic playing out around the world today. The possibility of micro - and macro-shocks makes medium - and long-term planning more complex, in particular regarding revenue targets, liquidity management and supply chains. Small and medium-sized enterprises are particularly affected as they lack the resources multinational companies can devote to complex treasury operations.

Rapid Global Trade and Capital Integration with Fragmented Economic Governance

The rapid global integration of trade and capital flows over recent decades has been a key driver of global growth. World trade almost tripled from the early 1990s to 2010, while international capital flows increased almost five-fold over the same period (see Figures 1 and 2)

These dynamics also fuelled the ongoing shift in economic power towards emerging economies that have greatly benefited from the opportunities of foreign investments, global supply chains and open capital flows.

Despite this rapid integration of economic activities, global cooperation on regulating these flows remains limited. The international monetary system remains largely unchanged from its origins in a world that was significantly less economically and financially integrated (see Appendix: Historical Overview of the International Monetary System). Many observers believe this played a role in fuelling the global financial crisis that began in 2008. The crisis spurred an unprecedented degree of global coordination through the G20 process, including a commitment from the French Presidency in 2011 to reform the international monetary system. However, a focus on dealing with immediate pressures, in particular stemming from Europe's debt crisis, has since overshadowed these global coordination and reform initiatives.

Many economists and policy-makers in the West argued that a free-floating regime of convertible currencies would lead to automatic adjustments and the most efficient allocation of resources at the global level. But developments over past decades have not matched these expectations. Countries have not universally discarded the management of exchange rates, and have often resorted to resolving domestic economic challenges without regard for external impacts. This has led to an accumulation of substantial macroeconomic imbalances that have left the international monetary system increasingly fragile.

It is clear that given these pressures, this system has to evolve. The widespread view is that the world is moving towards a multipolar currency system based on the euro, dollar and yuan, in which greater competition between reserve currencies would lead to greater discipline to maintain the respective economies in balance. But the path to such a system is highly uncertain. These currency areas, each of which could serve as an anchor for global stability, face the need for significant internal adjustments that constrain their international roles. This will be further explored in the following section.

The World Economic Forum's Euro, Dollar, Yuan Uncertainties initiative is aimed at exploring challenging futures where adjustments within the euro, dollar and yuan areas have a profound impact on the evolution of the international monetary system. It builds on a series of strategic conversations with leaders from the public, private and academic sectors, exploring their most pressing concerns and uncertainties.

The purpose of this report is not to advocate or predict specific outcomes. Rather, it explores the critical uncertainties underlying the future international roles of the euro, the dollar and the yuan, and depicts possible future states for the international monetary system based on policy choices in each of the currency areas. The year 2030 was chosen as a benchmark for these scenarios in order to allow for significant structural adjustments to play out independently from current political constraints.

China has remained relatively recently in the quiet rivalry Western powers finally came out of the shadows and blooms before our eyes. Cheap labor, goods and artificial restraint of the yuan exchange rate played a role. China ranks second in the world in terms of GDP (2010) and the first in terms of exports. China trade relations established with North America, Japan, Western Europe and others. In the Republic of China focused a lot of branches of foreign corporations. Although ten years ago the word "China" and "low quality" were synonymous, it is now known that in China there are products in all price categories. Thus, the exported goods have including the highest standards of quality and in demand almost everywhere, not to mention the share of Chinese textile and other consumer goods in the markets of the world.


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