The International Financial System462

Preview 462

Intervention in the Foreign Exchange Market 462

Foreign Exchange Intervention and the Money Supply 462

Box 1 Inside the Fed: A Day at the Federal Reserve Bank of New York's

Foreign Exchange Desk 463

Unsterilized Intervention 465

Sterilized Intervention 466

Balance of Payments 467

Evolution of the International Financial System 468

Gold Standard 469

Bretton Woods System 469

Box 2 Global: The Euro's Challenge to the Dollar 471

Managed Float 473

European Monetary System (EMS) 474

Application The Foreign Exchange Crisis of September 1992 475

Application Recent Foreign Exchange Crises in Emerging Market Countries: Mexico 1994, East Asia 1997, Brazil 1999, and Argentina 2002 477

Capital Controls 478

Controls on Capital Outflows 478

Controls on Capital Inflows 479

The Role of the IMF 479

Should the IMF Be an International Lender of Last Resort? 480

International Considerations and Monetary Policy 482

Direct Effects of the Foreign Exchange Market on the Money Supply 482

Balance-of-Payments Considerations 483

Exchange Rate Considerations 483

Summary, Key Terms, Questions and Problems, and Web Exercises 484

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