Exchange rate determination under the gold standard
As a special commodity, that is, the price of money, exchange rate can only be formed in the relationship between supply and demand by following the principle of equivalent exchange in market economy. The gold coin standard system is a typical gold standard monetary system. Under the gold coin standard system, countries use gold as monetary material and stipulate the gold content of unit gold coins. At the same time, it is stipulated that gold coins can be freely cast, freely melted and freely converted into bank notes, and gold can freely flow out and into national borders. It can be seen that in the gold coin standard period, gold coins are the main currency in circulation in various countries and can be freely paid and settled externally. Because the materials are the same, there is a basis for comparison between different currencies. The gold content of gold coins is fixed. Although the shape and size of gold coins vary from country to country, their value can be reflected by their gold content, so the price comparison between the two currencies is the ratio of their gold content. Under the gold standard system, the ratio of the gold content of two kinds of gold coins is called coin parity, so coin parity is the basis for determining the exchange rate during the gold standard period. For example, in the gold standard period, when the weight of each 1 pound coin was 123.2447 grains and the fineness was 22 kilograms of gold, the pure gold contained in each pound was 1 13.438+06 grains (123.47 At that time, the weight of gold coins per 1 USD was 25.8 grains, and the fineness was 90% (9/ 10), so the gold content of USD was 23.22 grains. Therefore, the coinage parity between pound and dollar is: 1 pound =13.0016 ÷ 23.22 = 4.8665 USD.
The output point and input point of gold always become the loss point of gold. Only when the market exchange rate deviates from the legal valuation to a certain extent will gold be exported or imported into a country, and its quantity limit is determined by the cost of transporting gold. For example, if the cost of transporting 1 pound of gold between Britain and the United States, including transportation fee, insurance premium and interest, is $0.03, then for American manufacturers involved in trade with Britain, the gold loss point is:
Gold export point = exchange rate between pound and dollar +0.03.
Gold export point = exchange rate between pound and dollar -0.03.
The reason why the gold delivery point becomes the upper and lower limit of exchange rate fluctuation is because there are two external settlement methods, cash and non-cash, during the gold standard period. Because the transportation of gold is risky and needs to be paid, people will choose non-cash settlement when the exchange rate fluctuation near the coinage parity does not exceed the transportation cost of gold. When the exchange rate fluctuation exceeds the cost of transporting gold, people prefer to choose the cash settlement method, that is, not buying or selling foreign exchange, but directly transporting gold for payment.
In fact, the existence of gold loss point is also an automatic adjustment mechanism of international payments. The loss of gold is not only a mechanism to ensure the stability of exchange rate, but also a mechanism to ensure the balance of payments among countries, so that gold can be distributed reasonably among infeasible countries. The specific operating mechanism here is that there are links and constraints among gold, price and balance of payments.
(B) the basis of exchange rate determination under the paper currency standard system
The exchange rate decision of Bretton Woods system is based on gold parity.
The basis of exchange rate determination under the current paper money standard system is purchasing power parity.
The so-called purchasing power parity refers to the ratio that the exchange rate of two currencies depends on their purchasing power. Because the purchasing power of money is actually the reciprocal of the general price level, the exchange rate of the two currencies depends on the ratio of the price levels of the two countries. This is absolute purchasing power parity. Commonly used is the relative purchasing power parity, the exchange rate in the design calculation period is R 1, the exchange rate in the standard period (base period) is R0, the inflation rate in country A is Ia, and the inflation rate in country B is Ib, so the formula for calculating the exchange rate by using the relative purchasing power parity is as follows.
(b) The basis for determining the exchange rate under the gold bar standard and the gold exchange standard system.
During World War I, the gold standard was severely damaged. After the war, some countries that wanted to restore the gold standard established the gold bar standard and the gold exchange standard. These gold bar standards were severely weakened and there was no gold coin in circulation. Therefore, the role of coinage parity as the basis for determining the exchange rate has been seriously weakened, and the gold delivery point does not exist. Under these two monetary systems, the exchange rate between the two currencies is determined by the proportion of gold content represented by paper money, which is called legal parity and is a manifestation of coinage parity.
The exchange rate fluctuates around the legal parity, but the fluctuation range is no longer limited by the gold input point and the gold output point, but is set and maintained by the government.
Second, the exchange rate determination in the process of paper money circulation.
(1) Period when paper money has legal gold content.
1, gold parity is the basis of exchange rate determination.
In the early days of paper money circulation, paper money had legal gold content (that is, the value represented by paper money was determined by governments according to the gold content of metal money in circulation in the past and stipulated in legal form). The ratio of the legal gold content of two currencies is called gold parity, which is the basis for determining the exchange rate during this period (under the circulation of fixed exchange rate banknotes).
At that time, the government monopolized the issuance of paper money by decree, and stipulated the gold content of paper money in legal form with reference to the original value of gold coins. Therefore, the gold content is the nominal or legal value represented by paper money, that is to say, the value represented by paper money in circulation during this period is conceptually represented by a certain amount of gold. For example, 1934, the US government stipulates that the gold content per 1 dollar is 0.88867 1 gram of pure gold, that is to say, the value represented by 1 dollar notes in circulation is equivalent to 0.8867 1 gram of gold. Similarly, the British government stipulates that the gold content per 1 pound is 3.88 1344 grams of pure gold, that is, the value represented by 1 pound notes in circulation is the same as 3.88 1344 grams of gold. Therefore, under the condition of paper money circulation, when the actual value represented by unit paper money is consistent with the national legal gold content, the comparison of the legal gold content of the two currencies, that is, the gold parity, is the basis for determining the exchange rate. For example: 1 GBP = 3.881344 ÷ 0.88671= USD 4.37, then 4.37 is the basis for determining the exchange rate between GBP and USD. Under the influence of foreign exchange supply and demand, the exchange rate between the pound and the dollar fluctuates around the gold parity within the prescribed range.
The government has the obligation to keep the exchange rate fluctuating within the prescribed range.
According to the Bretton Woods Agreement, the currencies of member countries are pegged to the US dollar, and the fluctuation range of the exchange rate against the US dollar is around the gold parity 1%, so all authorities have the obligation to intervene in the foreign exchange market to maintain the stability of the exchange rate.
(two) paper money does not indicate the gold content period.
After 1973, governments all over the world no longer stipulate the gold content of money, and the ability of paper money to buy a certain number of goods is reflected in the actual value represented by paper money in circulation. The ratio of the value represented by paper money, or the purchasing power of two currencies, that is, purchasing power parity, became the basis for determining the exchange rate during this period (under the circulation of floating exchange rate paper money). The exchange rate fluctuates freely under the influence of foreign exchange supply and demand.
During this period, with the disintegration of the Bretton Woods system, countries generally implemented the credit currency system. Governments no longer stipulate the gold content of paper money, and the value of paper money is no longer reflected by gold content. Restricted by the law of currency circulation in the circulation of paper money, the value of goods is expressed as price in its own unit of measurement. When all commodities are represented by paper money, paper money also directly reflects the value of all commodities it represents. That is to say, the ability of paper money to buy a certain number of goods is manifested in the value represented by paper money in circulation, and the value of three meters replaced by paper money is reflected in the purchasing power of paper money. According to the principle of equivalent exchange, the objective basis of the exchange ratio of two currencies should be the comparison of purchasing power of two currencies, also known as purchasing power parity. It basically reflects the comparison of the actual value represented by two kinds of banknotes in circulation, so under the credit currency system, purchasing power parity is generally considered as the basis for determining the exchange rate.