Money And Credit 3 PDF

Subject 3: MONETARY SYSTEM CIOBU Stela Assoc. Prof., Ph.D.  Content of the subject  National monetary system.  International monetary system  European monetary system 1. National monetary systems  Monetary system -notion Monetary system is a system b...

Subject 3: MONETARY SYSTEM CIOBU Stela Assoc. Prof., Ph.D.  Content of the subject  National monetary system.  International monetary system  European monetary system 1. National monetary systems  Monetary system -notion Monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks. History of monetary system THE FIRST MONETARY SYSTEM In the sec. VI BC according to the writings of Herodotus, in Lydia, a country in Asia Minor, King Cresus (560-547) established the first national monetary system: he established monetary units and subunits, fixed for each the content of noble metals, determined the ratio between gold and silver. , centrally issued the currency, decides on the rules of issuance and circulation of money.  Conditions for establishment of the monetary systems The contemporary evolution of the national monetary systems is marked by the processes of:  internationalization of the monetary relations,  the tendency to adhere to the regional monetary systems,  the appearance of the new forms of money,  the fundamental change of the value content of the currency.  National monetary system National monetary system must include all its constituent elements:  the monetary instrument;  the regulatory framework;  institutional structure. The national monetary system represents the functional organization of monetary instruments under legal regulations and under the supervision of the public monetary authority.  MEASURES AND ACTIVITIES OF NATIONAL MONETARY SYSTEM  The choice of the currency that fulfills the function of measuring the value, of standard, of general equivalent, by which the national currency is defined;  establishing the monetary unit, which, under certain name, serves as a standard of value;  choosing the effective circulation and payment instruments (main currencies, divisional money, banknotes, etc.);  regulation of the printing of denominations and issuing of metallic division coins;  regulating the issuance and circulation of banknotes and other signs of value, as well as non-cash settlements;  organizing the institutional apparatus that supervises and supports the application of the monetary system; establishing relations with other monetary systems. Instruments of monetary system  Monetary Instruments (1)  Monetary Institutions (2)  Money Regulations (3)  Monetary Instruments (1)  Monetary unit  Monetary standard  Broad money  Mechanism of money issuing  Regulation and issuing of monetary circulation  Mechanism of exchange rate  Mechanism of cash discipline for economic agents  MONETARY UNIT  The monetary unit is the central element of the monetary system and serves as a standard for measuring value.  In most countries the names of the national monetary unit have formed historically.  The names of the monetary units have different sources: - the name of the metal from which the coin was made - aureus, serebrenic, etc.; - the name of the unit of weight of the coin - drachma, pound sterling, pound, etc.; - the tradition established in the current speech: leu, leva, leka; - the name of the currency of another country - the dollar is the name of the national currency in 39 countries; - a convention - SDR, EURO, etc. or others.  MONETARY STANDARD  The monetary standard is the value contained in a monetary unit or the matter adopted as the basis of the monetary system, which defines the monetary unit and other types of currency.  In the historical evolution, the value of the monetary unit was qualified by: - the commodity standard, - the metallic standard, - the foreign exchange standard (currency, currency basket), - the purchasing power standard.  Broad money  Money is the term (and indicator) that identifies the total amount of money, regardless of the form it takes, and other assets that can be used for money.  The money supply is both an object of monetary management and a tool of macroeconomic management.  Increased significance for the normal functioning of the monetary system has a component of the money supply called cash.  It includes all monetary signs issued by the monetary authority in the form of banknotes, treasury notes, divisional currency of different denominations. It is important that the broad money of real money meets the needs of monetary circulation both in quantity and structure.  MONETARY ISSUE MECHANISM  Monetary issuing has now become a complex concern, on the one hand the circulation of cash and on the other hand the control over money supply (bank deposits and loans, monetary policy instruments and the money market).  the objectives being to ensure the normal functioning of the cash and non-cash payment system, the stability of the purchasing power of the currency, and the maintenance of the appropriate exchange rate.  MONETARY CIRCULATION MANAGEMENT  The monetary system has the mission to serve the normal functioning of the economy, which requires ensuring the validity of monetary circulation.  This is done through a complex of activities organized and carried out by the public monetary authority within the limits of its competences, namely: - analysis, - forecasting, - regulation, - supervision. THE MECHANISM OF ECHANGE RATE  In monetary practice there are several ways of establishing the exchange rate, the most representative being - fixing the exchange rate and quoting.  The fixing of the exchange rate means the arbitrary determination by the monetary authority of the ratio between its own currency and other currencies.  Quotation is the act of setting the exchange rate of one currency against another on the stock exchange.  There are two methods of quoting currencies: direct and indirect.  Direct quotation, practiced in most countries of the world, including the Republic of Moldova, is the situation when the foreign currency unit remains constant and the national currency unit varies. For example: 1 USD = 12.45 MDL.  Indirect quotation indicates how many foreign currency units make up a national currency unit. It is used only in a few countries: England, Australia, Ireland, New Zealand. The euro is set in the same way. For example: 1EURO = 1.37 USD or 1GBP = 1.61USD, etc. The exchange rate established following the daily quotation is called floating. MECHANISM OF THE CASH DISCIPLINE OF THE ECONOMIC SUBJECTS  The normal functioning of the monetary system in the current conditions is possible thanks to the observance of the rules regarding the keeping of cash in the houses of economic subjects, including commercial banks, in the forms of documents economic units, under the responsibility of responsible persons, etc.  In this regard, the Central Monetary Authority shall put in place a set of instruments and rules designed to ensure the regulatory behavior of all currency operators and payment instruments.  Monetary intuitions (2)  Lawmaker  Issuer  Organizer  Regulator  Supervisor  Monetary Regulation (3)  Constitution  Codes  Laws  Decisions  Regulations MONETARY SYSTEM OF MOLDOVA  The circumstances necessary for the establishment of the national monetary system emerged after Moldova's independence on August 27.  On December 15, 1992, the Law on Money No. 1232 - XII was adopted. This Law established the national monetary unit of the Republic of Moldova - the Moldovan leu, and the divisional unit of money.  A Moldovan leu is equal to 100 bani.  The leu was put into circulation on November 29.  On this day the exchange rate was set at 3.8 lei for  Cash in circulation (Soviet money and coupons) and money in accounts were exchanged for one leu.  MOLDOVAN LEU  (May 1994 issue)  Features: Dimensions: 58 x 114 mm;  Dominant colors, double-sided: yellow, green, brown and ocher;  Printed on special paper, the mass of which includes a watermark reproducing the portrait of Stefan cel Mare and a fully embedded metallic vertical safety wire. REGULATORY FRAMEWORK OF THE MONETARY SYSTEM OF MOLDOVA  The Constitution of the Republic of Moldova in art. 130 stipulates:...  (2) The national currency of the Republic of Moldova is the Moldovan leu.  (3) The exclusive right to issue money belongs to the National Bank of the Republic of Moldova. The issue is made according to the decision of the Parliament.  Law on the National Bank of Moldova devotes a special chapter to the currency - Chapter VIII Currency INSTITUTIONAL STRUCTURE OF THE NATIONAL MONETARY SYSTEM  National Bank of Moldova, being the public monetary authority, has the central role in organizing the monetary circulation. The National Bank, through its regulations, establishes the face value, dimensions, weight, design and other characteristics of banknotes and coins that are a means of payment in the Republic of Moldova. The National Bank organizes the printing of banknotes and the minting of coins and takes measures to keep those not issued in circulation safe. The National Bank has the exclusive right to issue in circulation banknotes and coins as a legal means of payment on the territory of the Republic of Moldova.  Commercial banks are the support of the National Bank in organizing the functioning of the national monetary system. Through them, the issuance of cash in circulation, the withdrawal of damaged denominations and coins, the exchange of monetary signs, the organization of monetary records and statistics (16) take place. 2. International monetary system  Paris Conference(1867)  it was introduced the gold standard  it was introduced the gold parity  it was established the fixed exchange rates, established by Law in the Parliament  it was established that GBP is recognized as an international currency  the bill of exchange was recognized as an official payment instrument  Genoa Conference (1922)  it was kept the gold standard  it was kept the gold parity  it was established the floating exchange rates  it was kept GBP as an international currency  it was introduced the obligation for all the countries to elaborate the monetary policy  It was introduced the currency regime Bretton-Woods Conference (1944)  it was kept the gold standard  it was kept the gold parity  it was established the fixed exchange rates and the “currency snake” +/-1%  it was established that USD is recognized as an international currency and the commercial and financial transitions should be performed in USD  it was established IMF and World Bank  it was established the Special Drawing Rights  Jamaica Conference (1974)  it was abolished the gold standard  it was abolished the gold parity  it was established the exchange rates  it was established the floating exchange rates  it was established the international gold market  it was introduced the Special Drawing Rights  the USD was kept as international currency  all the countries have been obliged to elaborate the monetary policies  IMF  The International Monetary Fund was created on December 27, 1945, coming into effect on March IMF goals:  promote international monetary cooperation;  oversees member countries' foreign exchange policies;  draws up documents containing the guiding principles of foreign exchange policy;  make funds available to Member States in the form of loans;  contributes to the establishment of a multilateral payment system between member countries.  IMF objectives  promoting monetary and international cooperation through a specialized institution, enabling permanent consultations between member countries;  facilitating the balanced conduct of international trade, which contributes to the efficient use of Member States' resources;  avoiding the manipulation of exchange rates for incorrect purposes;  elimination of currency restrictions that hinder the development of international trade.  World Bank structure  International Bank for Reconstruction and Development 1956  International Finance Corporation 1960  International Development Association 1988  Multilateral Investment Guarantee Agency  World Bank objectives  Promoting economic development and reforms in developing countries;  Providing long-term loans to finance investment projects and development programs.  These loans are directed to the fields of infrastructure: roads, railways, telecommunications systems, energy.  Special Drawing Rights  The factors that determined the emergence of international monetary units of account need to increase international liquidity;  the creation of an international currency that does not belong to any state;  finding a stable monetary instrument in the conditions of the unstable evolution of the convertible exchange rates.  issuance and record of SDR volume of international trade;  foreign exchange reserves of states;  international liquidity;  balance of payments status;  the records and movement from one country to another or from the IMF are made through the computerized system of the IMF SDR Department, where all funds expressed in SDRs are stored.  SDR (XDR)  Evaluation of DST  1970–1974 - gold  1974–1980 - basket - 16 currencies;  1981–1999 - currency basket - 5 currencies;  1999 - 2016 - currency basket - 4 currencies (USD, EUR, JPY, GBP). \  2016 – present - currency basket - 5 currencies (USD, EUR, JPY, GBP, Chinese Yuan).  XDR basket has consisted of the following five currencies:  U.S. dollar 41.73%,  Euro 30.93%,  Renminbi (Chinese yuan) 10.92%,  Japanese yen 8.33%,  British pound 8.09%.  Key aspects  Special drawing rights, or SDR, are an artificial currency instrument created by the International Monetary Fund, which uses them for internal accounting purposes.  The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and British pound.  The SDR interest rate (SDRi) provides the basis for calculating the interest rate charged to member countries when they borrow from the IMF and paid to members for their remunerated creditor positions in the IMF.  Functions of SDR  the value of a currency can be defined in DST;  reserve means – enter in the structure of international liquidity;  means of payment - used to purchase other currencies between central banks.  increase official foreign exchange reserve of the countries;  to procure against SDR convertible currency from other IMF member countries indicated by it;  to obtain directly convertible currencies against SDRs from a member country without IMF;  to pay interest and commissions;  limits on the use of SDRs to IMF and central banks of member countries;  individuals do not have access to SDR. 3. European monetary system HOME WORK Thank you very much for your attention!!!