Until 1914, the international movement of both long-term and short-term capital could be carried out almost without government control, since currency relations remained relatively stable, and inflationary processes in the international sphere were restrained. This happened due to the fact that interstate calculations were constantly adjusted by the gold standard mechanism. With the gold standard, there was a free international turnover. Foreign currency owners could freely dispose of it: sell to a bank or any third party at a freely prevailing rate, the fluctuations of which were limited golden dots1. The conversion of the national currency into foreign currency or gold (regardless of purpose) was not limited to anyone.
Fluctuations in exchange rates in the gold standard were usually insignificant. The mechanism of golden points was not an absolutely reliable regulator of exchange rates. For example, only three countries (UK, USA and Netherlands) allowed the free import / export of gold until 1914.
The First World War disrupted the normal functioning of the foreign exchange market. Most states have introduced trade and currency restrictions. Gold was withdrawn from circulation everywhere, and the gold standard mechanism began to function. In 1919, the authorities of leading countries ceased support for their currencies, a period of uncontrolled fluctuations in their rates came.
The 1922 International Conference in Genoa tried to establish some transitional system. To normalize the functioning of the currency system, it was recommended to restore the partial reversibility of national currencies into gold only in the form of ingots (gold disappeared from internal circulation). The main world stocks of treasury gold were concentrated in the USA, Great Britain, France and Japan.
After the 1929 crisis, a new attempt was made to reach international agreement. In June 1933, a conference was held in London, in which 66 countries took part. The issues of returning to the gold-monetary standard and establishing a triple ceasefire (customs, currency and, if possible, international debts), raising prices that could revive business activity were discussed.
The transition to the goldmaking system meant a sharp reduction in gold in international circulation and required further improvement of international credit and payment relations. Between the World Wars, various forms of currency clearing have developed. In 1932, the first bilateral clearing agreement between Hungary and Switzerland was concluded, and by 1939 there were already 83 clearing, 53 payment-clearing and 36 payment agreements between 38 states.
The Second World War further strengthened the need for state regulation of economic life, including domestic and international credit relations, but it inevitably upset them.
In the post-war years, the United States again acted as a lender to Western Europe, providing $ 17 billion under the Marshall Plan. The main reserves of world treasury gold concentrated in America, which led to the inevitability of a modification of the gold and duty standard into gold dollars. The currency system, based on gold alone, strengthened the interdependence of national farms.
Already in the 30s, and especially in the 40s, state monopolistic regulation is beginning to increasingly penetrate the sphere of interstate relations.
After the Second World War, currency zones took shape on the basis of pre-war currency blocks (groups of states whose currencies depend on the currency of the country leading the zone). The countries in the currency zone were connected with the leading country by a single monetary and financial regime and basically the same system of currency restrictions.
There were six currency zones: sterling, dollar, French franc, Portuguese escudo, Spanish peseta and Dutch guilder.
US-led dollar zone arose in 1933 (covering countries that did not apply currency restrictions
niy – Bolivia, Venezuela, Haiti, Guatemala, Honduras, Canada, Colombia, Mexico, Nicaragua, Panama, El Salvador). Their territory was 1 / 5 the globe. The main features of the dollar zone are as follows: maintaining a constant relationship between the currency of their country and the US dollar; lack of currency control in international settlements with foreign countries; storage of most of the foreign exchange reserves in the form of dollar deposits in US banks, through which international settlements of the countries of the zone were carried out. The dominance of American capital acted as the economic basis of the dollar zone; the vast majority of foreign trade in the countries of the zone was oriented to the US market.
The French franc zone was created by France to maintain its position in colonial, dependent countries (Algeria, Morocco, Tunisia, Madagascar, Monaco, Cameroon). The unified currency and customs regime of the countries of the zone, the free circulation of currencies within the zone, the provision of French franc and treasury bonds of France allowed French monopolies to exercise control over the economy and monetary system of these countries and to profit from this. All foreign economic operations were carried out through authorized French banks and the Stabilization Monetary Fund of the French bank. 1 Tunisia left the zone on October 1959, and the Republic of Guinea left the zone on March 1. To maintain its influence, France has increasingly used methods to increase state capital investment in the countries of the zone and budget subsidies.
The crisis of currency zones created the conditions for strengthening monetary and financial ties of developing countries. This was facilitated by the narrow financial base of most young states, the huge role of external financing, the uneven distribution of foreign exchange reserves, and the instability of balance of payments and exchange rates.
The rapid accumulation of huge foreign exchange reserves by oil-producing countries, the decrease in financial dependence on leading powers contributed to the establishment of regional ties.
The experience of war years and the danger of its repetition after the Second World War prompted the United States and Great Britain to take the first steps towards creating a free, stable and multilateral monetary system in 1943. The post-war international structure was discussed at the International Conference of the Anti-Hitler Coalition Countries in Bretton Woods (USA, 1944). The ideological inspirer of the creation of an international organization was M. Keynes. The opponent of this system was M. Friedman.
At the heart of the Bretton Woods system was, first of all, joint regulation of exchange rates, fixed and interconnected. To manage the system, the International Monetary Fund was formed, originally consisting of
44 countries. Each member of the organization determined the gold content of his currency and on this basis recorded the exchange rate in the currencies of other participating countries. Course fluctuations were allowed within 10%. The IMF provided short-term loans to settle balance of payments.
The international reserve, along with gold, was the American dollar – the only formally converted national currency into metal. The official price of gold until 1971 was $ 35 per troy ounce. The English pound was declared the “second” reserve currency. The rates of operations with cash foreign currency in the market of each country should not have differed from the parities by more than 1%.
To facilitate international reports, special drawing rights (Special Draw Right or SDR) have been created. The distribution of SDRs between participants took place in accordance with the financial contribution of each of them. SDRs were exchanged for all currencies of IMF participants at the rate initially equivalent to the dollar, and then set to $ 1.2.
The Bretton Woods currency system has remained effective for about 15 years. The 1950s were relatively calm in terms of a gradual approach to convertibility. Only the French franc underwent a significant change in parity, being devalued on December 27, 1958 by 14.9%.
In 1961, the German brand and the Dutch guilder revalued. On November 18, 1967, the pound was devalued from $ 2.80 to $ 2.40. In 1968, the French franc devalued by 11.1%, and in 1969 the German brand revalued.
At the Currency Conference on December 17-18, 1971, within the framework of the Smithsonian agreement of the United States, it was decided to increase the official value of gold from $ 35 to $ 38 per ounce, which meant a dollar devaluation by 7.89%. The revaluations amounted to: 7.7% for the yen, 4.6% for the German brand, 2.8% for the Dutch guilder and the Belgian franc. The agreement provided for the expansion of permissible limits for currency fluctuations from 1 to 2.25% in both sides of parity and some other measures designed to help restore currency stability.
In January 1976, the Kingston Agreement on the revision of the IMF charter (Jamaica Island) enshrined the rejection of the fundamental principles of the Bretton Woods system. The gold standard and the system of solid fixing of rates were canceled, a ban on the use of gold as the basis of currency parities was imposed, and the system of floating exchange rates was legalized. At the same time, many partners retained their reference to the dollar and decided to turn SDRs into the main reserve, a key asset of the world monetary system. However, the SDR quota in world foreign exchange reserves remained at 6%.
One of the most important principles underlying the amended IMF charter was the abolition of the official price of gold and its elimination from the monetary system, international settlements and credit relations. Since that time, the influx of American currency into international payment has increased especially sharply.
The free exchange rate regime contributed to the development of a trend towards polycentrism in the monetary sphere with pronounced signs of the loss of the role of the currency benchmark by the dollar.
Along with the development of monetary relations and their regulation in the global aspect, there was a process of streamlining them on a regional scale. Gradually, a contradiction arose between the foreign trade and currency components of the integration process, which was especially aggravated in 1973 in connection with the transition of the world currency system from fixed to floating exchange rates. In order to mitigate contradictions and limit the ability of states to manipulate their currencies in the interests of their own exporters, the EEC member countries introduced the European Monetary System in 1979. It provided for the establishment of a narrow corridor, within which fluctuations in the exchange rates of national currencies and the gradual unification of the monetary systems of all participating countries are possible, helped to reduce inflation and ensure the stability of exchange rates. The mechanism of operation of the system involved the use of a single unit of account of Ekyu.
Ekyu is a currency that was supported by a basket of national currencies of the Community countries. The share of each participant depended on its share in the total gross product and mutual trade. On the basis of the currency basket, the central exchange rate of the ecu was also formed. The quotas were as follows.
Table 2.
Shares of EU member states in the currency basket of Eku (in%)
Currency | Share |
German brand | 32.7 |
French franc | 20.8 |
English pound | 11.2 |
Dutch guilder | 10.2 |
Italian Lira | 7.2 |
Belgian and Luxembourg franc | 8.7 |
Spanish peseta | 4.2 |
Danish krone | 2.7 |
Irish pound | 1.1 |
Portuguese escudo | 0.7 |
Greek drachma | 0.5 |
The exchange rate regime in the system provided for joint currency changes, called the “European currency snake. The limits of mutual fluctuations were set in size 2.25% of the total central course (for Italy and Spain – 6%). Since August 1993, due to the aggravation of the EU currency problems, the scope of these fluctuations has been expanded to fifteen%.
Eku acted as an international payment and reserve means, along with national currencies, but existed in the form of a record on bank accounts and non-cash transfers on them.
The main characteristics of the evolution of the development of the world monetary system are presented in the table 3.
In the modern development of the world monetary system, several relatively new trends have manifested themselves, which directly affected the functioning of the currency mechanisms of many countries of the world. One of these trends is an attempt to introduce a regional currency instead of national currencies in various regions of the world. The transition to a single currency can be carried out either by switching to the use of the national currency of the leader country in the region as a common currency, or by creating a new international monetary unit.
Table 3
The evolution of the global monetary system
Gold standard system | Bretton Woods (1944-1967) | Jamaican (1978-n.v.) | |
Paris (1867-1914) | Genoese (1922-1936) | ||
Gold coin | Gold and visa | Gold currency | SDR Standard |
The gold content of national currencies was established; gold served as a recognized means of payment and world money; banknotes were freely exchanged for coins based on the weight content of gold in the latter; exchange rates could deviate from coin parities within gold points by 1%; a strict relationship was maintained between the country’s gold reserves and the volume of monetary emissions. | The main mechanism of settlements is gold substitutes (devisas), which could be some national currencies; the conversion of currencies into gold began to be carried out not only directly (USA, UK, France), but also indirectly, through foreign currencies (Germany and about 30 more countries); the regime of freely fluctuating exchange rates has been restored. | Maintaining the function of world money for gold while using reserve currencies (US dollar, pound sterling); mandatory exchange of reserve currencies for gold at the established rate of 35 US dollars for 1 troy ounce; currency parity of the national currency was established in gold and dollars; the permissible deviation of exchange rates from currency parity is not more than 1%. | The US dollar is equivalent to other reserve currencies (German, Swiss franc, yen); gold was dismantled, its official price and any binding of currencies to gold were canceled; the regime of floating exchange rates is legalized; regional currency unions become full participants in the global monetary system, although other relations operate within them. |