24 | June | 2022 | Mostly Economics

Archive for June 24th, 2022

Pictures of a Revolution: Analyzing the Transition from Global Bimetallism to the Gold Standard in the 1860s and 1870s

June 24, 2022

Johannes Wiegand of IMF in this paper:

In the early 1870s, the global monetary system transitioned from bimetallism—a regime in which gold and silver currencies were tied at quasi-fixed exhange ratios—to the gold standard that was characterized by the use of (only) gold as the main currency metal by the largest and most advanced economies. The transition ocurred against the backdrop of both large supply shifts in global bullion markets in the 1850s and 60s and momentous political events, such as the Franco-Prussian war of 1870/71 and the subsequent foundation of the German empire. The causes for the transition have long been a matter of intense debate.

This article discusses three separate but interrelated issues: (i) assessing the robustness of the pre-1870 bimetallic system to shocks—which includes a discussion of the appropriate use of Flandreau’s (1996) reference model; (ii) analyzing the transition from bimetallism to gold as a multi-stage currency game played by France and Germany; and (iii) evaluating the monetary debates at the German Handelstag conferences in the 1860s, to present a more complete narrative of the German discussion in the run-up to the transition.

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From 1980s Debt Crisis to Crypto Era: Changes in IMF’s Financial Stability Monitoring and Reporting

June 24, 2022

Tobias Adrian, Fabio Natalucci and Mahvash S. Qureshi in this IMF blog post look at financial stability since 1980s debt crisis. They also point how IMF’s reports on financial stability have changed with times.

Monitoring the health and outlook of the global economy and member countries is the bedrock of the Fund’s work. This surveillance role, outlined in amendments to our Articles of Agreement first adopted at the 1944 Bretton Woods Conference, charges us with overseeing and safeguarding the international monetary system.

In the early years, surveillance focused on the macroeconomic and exchange-rate policies of member nations, but growth in international banking in the early 1970s highlighted a need to better track global capital markets and assess financial-stability implications. Consequently, the Fund started discussions with monetary authorities in major financial centers and in 1974 initiated internal reports on market developments and prospects.

Starting in 1980, the report known as International Capital Markets became our main vehicle to monitor conditions in financial markets, warn of risks, and analyze disruptions like Latin America’s debt crisis of the 1980s or Europe’s exchange-rate mechanism crisis in the early 1990s. But that era’s rapid expansion and integration of global capital markets, and the ensuing financial crises in Asia and several other emerging markets, highlighted the need to better assess systemic risks.

The introduction of the Global Financial Stability Report marked an important step toward a more comprehensive and frequent assessment of cross-border capital flows and financial market risks. In his forward to the first GFSR, the then-Managing Director Horst Köhler noted how the report had its roots in crisis.

“The rapid expansion of financial markets has underlined the importance of a constant evaluation of the private sector capital flows that are the engine of world economic growth, but sometimes at the core of crisis developments as well,” he wrote. “Opportunities offered by the international capital markets for enhancing global prosperity must be balanced by a commitment to prevent debilitating financial crises.”