藏疆壮根丸,bavii,5252bb
The countries of Asian region in their majority opted for the stability of their exchange rate and introduced the policies that linked the national currency to the dollar value and let it fluctuate only in small scope around the dollar value.
The dynamics of currencies during the 20th century can be illustrated by the exchange rate between dollar and pound in the period from 1957 to 2001(fig.1).
Today there exist three major currencies: dollar, euro and yen; other currencies are in some way dependent from these ones.
Currently we can witness the development of three major exchange rate systems and several their modifications. The countries that use managing exchange rate system have worked out several policies for maintaining economic stability. One of the long-living policies is the usage of currency boards. The idea of a currency board means full backing of international currency reserves. Since the countries using fixed exchange rate systems need to have reserves of international currency, one of their main problems is to cover the excess demand for foreign currency in case of instability; and the main reason that causes economical disbalance in such countries, is the inability to cover excess demand and therefore the inability to keep the fixed exchange rate on the desired level. This problem can be avoided by currency board: i.e. the bank only issues as much national money, as it can cover by the reserves of international currency. Such systems have proved their viability, but, like all fixed exchange rate systems, they are still vulnerable to the speculative attacks. However, the examples of Argentinean and Hong Kong currency boards show us that these systems can be effective, at least in the short run.
The other economical instruments that are used for exchange rate managements, are pegging the currency (either to one currency, or to the basket of currencies), accepting a managed float for a specific currency within the region where different currencies are in use, and letting the currency to float freely against all other currencies.
2. Pros and Cons of Each System各个系统的优缺点
Since exchange rates and economies of all countries have experienced significant instability in 20th century, there have appeared a lot of arguments concerning the choice of exchange rate system. Since the fixed exchange rate system has been widely used before, there have been a lot of its supporters. The main their argument has been that floating exchange rates mean instability. However, there appeared a number of researchers offering arguments in favor of floating exchange rate system.
2.1. Advantages of fixed exchange rate system固定汇率制度的优点
First of all, fixed exchange rates offer much greater stability for the enterprisers and stimulate international trade; since the exchange rates stay on the same level, the importers and exporters can plan their policy without begin afraid of depreciation or appreciation of the currency. Moreover, fixed exchange rates make the producers more disciplined, i.e. they are forced to keep up with the quality of their production and to control the costs of the production to stay competitive compared to international enterprisers. This advantage of fixed exchange rates allows the government to decrease inflation level and stimulate international trade and economical growth in the long period [10, p. 37].
Secondly, it is believed that fixed exchange rates stimulate the reduction of speculative activity worldwide; but this statement is true under the condition that the adopted exchange rates are profitable for the foreign dealers as well as for domestic ones (closer examination of this condition shows us that monetary and fiscal policies attempting to protect domestic producers – which are often required to preserve economical stability – violate this condition and therefore create the ground for speculative intervention).
2.2. Disadvantages of fixed exchange rate system固定汇率制度的缺点
The main disadvantage of it is the high vulnerability of the economical system to speculative attacks. Any economy experiences excess supply and demand in either national or foreign currency: and if the national banks are unable to cover the gap between the existing resources and demand, the fixed rate needs to be changed; this situation reduces the positive effects of the fixed rate exchange system and decreases the credibility of the currency.
One more disadvantage of this system is that if the government artificially supports the exchange rate, which is not adjusted to changed economical condition, the development of the country’s economy is not as efficient as it could be if the rate was adjusted to the situation. Moreover, interest rates, which directly depend on the exchange rate, can stop possible economical growth in case of their disparity to market needs.
In the conditions when the national currency is tied to some international currency, there exists very significant dependence of the condition of these countries’ economical stability. In this case the government is actually forced to solve the economical problems of the countries, with currency of which it is linked. This situation creates the possibility for dominating countries to improve the state of their economy at the expense of related countries with weaker economies; and at the same time destabilizes the market situation in these related countries.
I think that taking into consideration the growing economical and political integration, the strengthening of the economical connection between countries, the fast development of world trade and economical specialization, the advantages of fixed interest rates do not cover the losses caused by the restrictions imposed by this system.
The main advantage of this system is its flexibility and the possibility for the country’s economy to be quickly adjusted to changing market conditions. If the balance of payments deficit is violated, the floating exchange rate system allows to adjust a currency outflow or inflow into the country; this automatically makes the domestic goods either more competitive (in case of appreciation on the currency market) or makes foreign goods more competitive (in case of the currency’s depreciation).
The second advantage of floating exchange rate system is that it automatically determines interest rates within the country and therefore allows controlling the economical balance more effectively.
It is believed that this exchange rate system leads to instability on the market and does not stimulate the development of trade and production; floating exchange rates destabilize economical situation and lead to economical crises. The instability of exchange rates after the end of Bretton-woods system and the whole depression in world economy at that time illustrated this point of view; however, with the flow of time the economists started regarding this system from a different point of view: the work of Milton Friedman in 1953 opposed the common belief that instability was caused by the float of exchange rates. Friedman stated that instability was caused by wrong economical policy of the governments and other factors, not depending on the exchange rates mechanism. Indeed, the effects of flexible exchange rates on the stability of prices and production have appeared to be much smaller than they were expected to be; for example, in Germany in 1980s the purchasing power of DM shifted from 20% above the purchasing power of USD to 25% below this level, and then returned to 25% above USD purchasing power. According to the predictions, this shift has to cause significant disbalance in German economy; but contrary to these assumptions, the changes were very modest. It has appeared that most producers chose to keep up with the strategy of “pricing to market”. This means that the prices of the goods remained stable in the currency of importing country, and therefore they were not heavily destabilized by the shift in exchange rates.
The instability of exchange rates is the main argument of floating exchange rates opponents. However, besides Friedman’s explanations, there have been other attempts to explain this great instability. For example, Dornbush in 1976 suggested that there existed a phenomenon of “over-shooting”. This means that to be successful in the long run the economy needs to depreciate its currency, in order to reduce inflation and stimulate economical growth. However, in the short period depreciation will cause the decrease of interest rates and the fall of activity; in order to stimulate the activity of firms, the currency needs to be expected to rise in future. The only variant that can provide depreciation in the long run together with the expected rise of the purchasing power of the currency is the fall of the currency lower than it’s needed in the long run; for example, if the money supply of the country rises by 5%, its currency needs to be depreciated by 5% in the long run – but to stimulate economical activity, the currency needs to be depreciated by 15% with expected rise by approximately 10% (the so-called mechanism of “over-shooting”).
Another advantage of floating rate system is that it allows the government to introduce separate monetary and fiscal policies, which is rather difficult under the conditions of a fixed exchange rate system. In general, the arguments between the supporters and opponents of floating exchange rate system lie in the relation between the price paid for the instability of exchange rates and the possibility to introduce independent monetary and fiscal policy, and therefore to adjust quickly to changing economical conditions. |
