The Experience of Exchange Rate Regime Change Among Developing Countries 1968-78
Background:
When the sterling-dollar exchange rate changed in 1971 some sterling area countries chose to shift their peg to the US$ while others continued with sterling. When sterling floated in June 1972, more countries shifted to the US$ but not all. When the system collapsed in 1973 these states then had to choose whether to maintain their peg to a floating US$ or £, or to a basket of currencies, or to float independently.
This project will explore the reasons behind these choices and their outcomes in a variety of institutional settings for Hong Kong, Singapore, Malaysia, Ghana, Nigeria, Australia, New Zealand.
The economics literature on exchange rate choices for developing countries emphasises the importance of institutional structures and their quality in formulating appropriate policy choices. This makes an economic history approach particularly appropriate to study this issue. By accessing archival evidence newly released under the 30-year rule, a more highly textured and direct investigation can be undertaken than hitherto.
The main research questions will be:
1. How did these states manage the transition from pegging their rates to sterling to operating wider bands around a floating US$ or basket currency?
2. What influenced the difference in timing over this decision?
3. How important was the introduction of national currencies in the mid-1960s?
4. How important were balance sheet effects for reserve management?
5. What reforms to financial markets and institutions were required? Were they successful?
6. How did these states manage the diversification of their reserves, amd what impact did this have?
7. How were international capital markets used to manage the transition in different institutional environments?
8. How did the international financial system influence the transition and functioning of the new regimes?
9. How did these states and their financial markets manage their exposure to risk?
Working Papers:
WEF0048
The Evolution of the Hong Kong Currency Board during Global Exchange Rate Instability: evidence from the Exchange Fund Advisory Committee 1967-1973
Catherine R Schenk
WEF0033
Disentangling from Sterling: Malaysia and the end of the Bretton Woods system 1965-72
Catherine R Schenk
WEF0030
New Zealand's Exchange Rate Regime, the Collapse of Bretton Woods, and the Twilight of the Sterling Area
Catherine R Schenk, John Singleton
WEF0021
Economic and Financial Integration between Hong Kong and Mainland China before the Open Door Policy 1965-75
Catherine R Schenk
Publications:
C.R. Schenk, ed., Hong Kong SAR's Monetary and Exchange Rate Challenges;
historical perspectives, Basingstoke: Palgrave Macmillan, 2009.
C.R. Schenk, '"Parasitic Invasions" or Sources of Good Governance:
Constraining Foreign Competition in Hong Kong Banking 1965-81', Business
History, Vol. 51(2), March 2009, 157-179. ISSN 0007-6791.
C.R. Schenk, 'The Evolution of the Hong Kong Currency Board During
Global Exchange Rate Instability: Evidence from the Exchange Fund
Advisory Committee 1967-1973', Hong Kong Institute for Monetary Research
Working Paper No 2, 2009
C.R. Schenk, 'Malaysia and the end of the Bretton Woods system 1965-72:
Disentangling from Sterling', Journal of Imperial and Commonwealth
History, 36 (2), June 2008, pp. 197-220. ISSN 0308-6534.
Researchers:
Prof Catherine R Schenk
University of Glasgow
Contact:
Prof Catherine R Schenk
Department of Economic & Social History
University of Glasgow
Lilybank House
Bute Gardens
Glasgow
G12 8RT
Tel: 0141 330 6616
Fax: 0141 330 4889
email: c.schenk@socsci.gla.ac.uk
Duration of Research:
July 2006 - June 2009
The future of the International Monetary Fund
At last we hear positive commentary on the work of the International Monetary Fund, the IMF. In the article “Back from the Dead” (September 19 2009). The Economist claims that the IMF has undergone a positive transformation under the leadership of Dominique Strauss-Kahn. “Today the fund is widely hailed as a flexible and innovative crisis-responder,” it says. The main criticism of the IMF’s past work was that it was mainly supporting rich countries and ignoring poor ones.
The ‘healing’ of the IMF started with the expansion of its lending capacity to $750 billion boosted by the Group of Twenty (G-20) industrialized and emerging market economies. The IMF has shown new-found flexibility in dealing with the vulnerable economies across Eastern Europe compared to its practices during the Asian Crisis. However, The Economist argues that more is needed: “The IMF became relevant by lending freely, quickly and with few strings attached. But because the organisation is still dominated by rich-country governments, emerging economies are unlikely rely on it as a lender of last resort unless there are clear rules that promise free lending in future panics.”
The recent G-20 Summit in Pittsburgh (October 2009) outlined the future role of the IMF as the international agency responsible for overseeing the international monetary system and the guardian of stable financial markets. Not everybody is so optimistic.
Catherine Schenk, Professor of International Economic History, from the University of Glasgow and a member of the WEF research programme says: “The reputation and effectiveness of the IMF has, of course, waxed and waned over its 60 years of operation. In the 1960s, as today, apparently unsustainable global imbalances threatened the use of the US dollar as the global reserve currency. At that time, the IMF ceded leadership to the G10 for most of the discussions, gaining prominence only after the G10 failed to come to a consensus on how to move forward. The outcome was the largely ineffective SDR, which did not replace reserve currencies (yet). The Committee of Twenty states that took the international reform discussion forward in the 1970s was too disparate to come up with concrete proposals, which does not bode well for the G20.”