Intro to international relations (class 10)

1.

PLS 150 INTRO TO INTERNATIONAL
RELATIONS
DR MAJA SAVEVSKA
Assistant Professor
Department of Political Science and International Relations
SSH | Nazarbayev University
Office: 8.502
Email: [email protected]
30-11-22
Intro to IR
Nur-Sultan, Kazakhstan

2.

Week Ten
Monday
Wednesday
Friday
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Kahoot
(10 min)
• Lecture
(20 min)
• Interactive
Activities

3.

Announcement
Discussion Board II
October 28, Friday 4pm

4.

Current Events

5.

Recap
What is the difference between portfolio and
foreign direct investments?
What is sovereign lending?
What is the international investment regime?
What are bilateral investment treaties?

6.

Issue Areas in IPE
Trade
Production and MNCs
Monetary and Financial Affairs
Development and Inequality

7.

International Monetary System
What is it?
The glue that keeps national economies
together
The purpose of international monetary system
Facilitate exchanges among countries

8.

International Monetary System
Why we need it?
Countries have national currencies that are no
legal tender in other countries
Legal tender is medium of payment
recognized by a domestic legal system
Ex: Kazakh tenge is the legal tender of
Kazakhstan

9.

International Monetary System
Types
Commodity standard
Commodity backed paper standard
Paper currency standard (fiat)

10.

Key Concepts
Exchange Rate
Price of one currency in terms of another
Ex: $1 = 439 Kazakh tenge
Its value can go up and down:
If the value of the KZT relative to the $
goes down than it depreciates ($1=500
KTZ)
If the value of the KZT relative to the $
goes up than it appreciates ($1=150 KZT)

11.

Euro to Dollar exchange rate 20 October 2022: EUR 1 = USD 0.9811
Source: ECB

12.

Key Concepts
Exchange Rate Types
Fixed exchange rates
ii) Floating exchange rates
i)

13.

14.

Week Ten
Monday
Wednesday
Friday
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Kahoot
(10 min)
• Lecture
(20 min)
• Interactive
Activities

15.

Current Events

16.

Key Concepts
Balance of Payments
Accounting device, a record keeping between
a country and the rest of the world.
Two categories: current and capital account
Current: trade (goods and services), income
account, and unilateral transfers
Capital (financial): financial flow (net change
of ownership of assets) – FDI, portfolio
investments, bank loans, reserves

17.

Key Concepts
Balance of Payments Adjustments
Under floating exchange rates:
Balancing via movement of exchange rates
Ex: if demand for dollars in Kazakhstan
increases (people are importing more goods
than they sell abroad), then the tenge will
depreciate and vice versa.

18.

Key Concepts
Balance of Payments Adjustments
Under fixed exchange rates:
Balancing via changes in domestic prices
If the demand for dollar increases in
Kazakhstan, the central bank will increase
interest rates to curtail the supply of money
and in turn prices will fall. The country can
also use its foreign exchange reserves or
borrow money.

19.

Open Economy Politics (Lake)
Interests
Domestic Institutions
Interstate Bargaining

20.

Interests
Preference Formation
Preference for monetary policy choices:
Exchange rate regimes
International monetary regimes
Actors:
Import-competing producers
Export oriented producers and investors

21.

International Monetary Systems
Gold Standard:
Fixed exchange rate system
Bretton Woods
Post Bretton Woods

22.

Gold Standard
Two constitutive elements:
Monetary unit is defined in terms of
certain amount of gold
Ex: 1 ounce of gold = $20.67
Obligation to redeem a note in gold
i.e. convertibility

23.

Gold Standard – Rules of the Game
Deficit country: its central bank can intervene
to prevent the outflow of gold by reducing
the supply of money and boosting the
competitiveness of its exports
Instruments:
i)
Interest rate (discount rate): central banks
increase/decrease the credit in the economy

24.

Interests Rate
Deficit: central bank will increase the
interest rate
reduction in money
supply
fall in price level
imports will become expensive, its
exports more competitive
Surplus: central bank will decrease the
interest rate
increase in money
supply
increase in price level
imports will become cheaper, its
exports more expensive

25.

Political Problems
William Jennings
Bryan vs. William
McKinley
Gold Standard was a
force of deflation
Farmers were ‘nailed
to a cross of gold’

26.

Gold Standard
Why it worked?
No franchise, no pressure to subordinate
currency stability to other objectives
Wages and price were flexible

27.

International Monetary Regimes
Gold Standard
Fixed-exchange rate system
Bretton Woods
First effort of multilateral cooperation
Last effort to establish fixed-exchange rates
Post Bretton Woods

28.

Invasion of Normandy

29.

Bretton Woods Conference

30.

Bretton Woods Negotiations
Nobody liked
floating
exchange rates
The solutions to the dilemma were:
fixed but adjustable exchange rates
capital controls
Agreement was reached in July 1944
Yet, a rerun to the
GS was
impossible
because of
emergence of
political constrains

31.

Bretton Woods
Departure from the Gold Standard
1) Pegged, but adjustable exchange rates
2) Capital controls
3) International Monetary Fund
Monetary Fund: credit mechanism consisting of
pool of currencies contributed by members

32.

Week Ten
Monday
Wednesday
Friday
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Current
Events (10
min)
• Lecture on
monetary
politics
(40 min)
• Kahoot
(10 min)
• Lecture
(20 min)
• Interactive
Activities

33.

Kahoot

34.

From $ Shortages to Glut
Unintended consequence: dollar was primary
reserve asset
Dollar was as good as gold
$ glut was a consequence of the US’s persistent
trade deficit
Dilemma: dollar overhang can engender the fixed
exchange-rate system, but strengthening the dollar
can lead to global deflation
Exorbitant privilege of the dollar

35.

Features of Fixed Exchange Rates
Central banks commit themselves to defending a
given exchange rate
Then it become difficult to defend the exchange
rate
Speculators precipitate its abandonment
By its very definition FER are vulnerable to
speculative attacks

36.

Nixon
https://www.youtube.com/watch?v=iRzr1QU6K1o

37.

International Monetary Regimes
Gold Standard
Fixed-exchange rate system
Bretton Woods
First effort of multilateral cooperation
Last effort to establish fixed-exchange rates
Post Bretton Woods

38.

Floating Exchange Rate
Departure from the Bretton Woods
Floating exchange rates
Capital mobility
IMF (new purpose)
Monetary Fund: credit mechanism consisting of
pool of currencies contributed by members

39.

Amendment of Articles of Agreement
Revision of Article IV
Sec 1: Countries are free to choose methods of
currency exchange as long as they were
promoting stability, orderly economic growth and
not directed at manipulation of exchange rate

40.

Data
IMF’s Annual reports on exchange rates

41.

Activity (IMF Report)
Read the IMF report on exchange rate
arrangements.
What type of exchange rate systems we have
nowadays?
How many countries use the dollar as anchor?
How many countries use the euro as anchor?

42.

43.

44.

45.

Q&A
Dr Maja
Savevska
Thank you for your attention