US president Richard Nixon shocked the world 50 years ago by suspending the convertibility of the US dollar into gold and threatening trade restrictions unless other countries agreed to adjust their exchange rates to the advantage of US exporters.
A highly radical move born out of frustration with close allies and leading trade partners, it overturned structures the US had established at Bretton Woods in 1944 and was designed to shift the onus of adjustment in the pegged exchange rate system from deficit countries to surplus countries.
In effect, Nixon threatened a return to trade protectionism unless West Germany and Japan, among others, increased the value of their own currencies against the US dollar.… Seguir leyendo »
International financial stability has not been seriously tested by the COVID-19 pandemic, but this may be about to change as advanced economies recover with a growing risk of sharp divergence between their economic performances and those of most middle- and low-income countries.
Since the global financial crisis a decade ago, the international community has worked to strengthen the global financial safety net. The current system has four key elements – the International Monetary Fund (IMF), multilateral regional financial arrangements (RFAs), national foreign exchange reserves, and bilateral central bank swaps. But each has its drawbacks for users of the wider international system.… Seguir leyendo »
After 2008, when central bank interest rates plummeted to combat the financial crisis, low investment yields in advanced economies caused many emerging markets to experience massive capital inflows, causing appreciating currencies. Now, as rates are beginning to rise again, especially at the US Federal Reserve, the reverse is likely – as the dollar value rises, capital should begin to flow out of these emerging markets and put downward pressure on their currencies.
This has focused attention on the resilience of the global monetary and economic system – which has to step in as emerging markets face this strain – as well as the stigma it faces from many governments around the world. … Seguir leyendo »