POLI 243 Lecture Notes - Bretton Woods System
27 Feb 2013
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18th feb a national govt. issuing currency, to attract/promote it as an intl. medium of exchange. Having everyone else use your money gives govt. power over outside actors ability to run trade deficits : others would take your money. Us, difference made by paying its own money out. The country gets an advantage of dealing with deficit problems impetus for outward foreign investment : individuals have advantage of going out, establishing their firms outside the country. Fdi wherein a firm buys an existing business. Disadvantages : currency overhang : to get everyone interested in using your currency is challenging , you"re trying to push enough money to help international economy. You can"t force others to use it, people have to believe that its gonna be worth something in the future. A need to develop confidence among actors in intl economy. Too much paper money/credit in the system that you have reserve asset (overhang).
