Adobe Systems
IREn4004 International law and regimes
International monetary regime
Vladan Hodulák
This powerpoint serves as a learning material for the students of the course International law and
regimes (IREn4004) at FSS MU in Spring 2021. Using this presentation for other purposes without the
consent of the author is prohibited.

Adobe Systems
Introduction
̶Definition – a set of international monetary and financial rules (both formal and informal) that
govern interactions between actors and that create their expectations
̶Fundamental attributes of the regime
̶What are the rules for balance of payments adjustment?
̶Who and how provides liquidity in the system?
̶How is confidence in the system maintained? (legitimacy)
̶Who and how exercises governance in the system?
̶How are the rules adjusted?
̶What is the normative purpose of the regime?
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IREn4004 International law and regimes

Adobe Systems
Balance of payments adjustment
̶Sustainability of balance of payments deficits
̶Borrowing or reduction on savings/assets
̶Mechanisms for BoP adjustment
̶Change in relative prices (external devaluation × internal devaluation)
̶Administrative controls
̶Other
̶Transitional costs of adjustment
̶The cost of the change itself – economic crisis, inflationary pressures, redistribution, political
instability
̶Continuing costs of adjustment
̶Costs prevailing after all change has occurred – lower absorption (relative × absolute)
IREn4004 International law and regimes

Adobe Systems
International monetary power
̶Monetary autonomy × monetary statecraft
̶Power to deflect
̶Derives from fundamental economic variables – mainly the degree of openness and the degree of
adaptability of the economy (ability to quickly and easily realocate factors of production,
availability of resources etc.)
̶Power to delay
̶Derives from financial variables that determine each country’s international liquidity position –
total amount of reserves, availability of credit, international standing of domestic currency
̶Surplus × deficit countries
̶Active and passive mode of monetary power
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IREn4004 International law and regimes

Adobe Systems
Development stages of international regimes
̶Inspired by Kuhn’s life cycle of paradigms
̶Period of perceived stability
̶The regime is considered legitimate, the rules reflect the prevailing balance of power, economic
reality meets the normative expectations, distributional consequences are not challenged
̶Period of stresses and transformations
̶Increasing political contestation of the rules and distributional consequences, distribution of
power changes, there are more frequent and serious anomalies, these are explained away and
addressed by ad hoc solutions, entrenchment of ideological positions
̶Crisis stage
̶The consensus around prevailing policies and interests falls apart, various actors search for
viable alternatives, there is an ideological and power related struggle regarding the new rules of
the game
IREn4004 International law and regimes

Adobe Systems
Typology
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IREn4004 International law and regimes

Adobe Systems
Gold standard
̶Inception and development of the regime
̶1821/1873-1914/1931
̶The fundamental attributes of the regime
−Adjustment – the price-specie flow mechanism (theory), interest rate adjustment, domestic economic
policies
−Liquidity – limited by the available gold, de facto provided by the Bank of England
−Confidence – idea of gold being real money, power of the British Empire
−Management – informal cooperation among central banks
−Rule change – no rule adjustment mechanism/unilateral decisions of nation states
−Normative purpose– laissez-faire, economic liberalism, free trade
̶Collapse of the regime
IREn4004 International law and regimes

Adobe Systems
The Bretton Woods regime
̶Inception and development of the regime
̶1945/1959-1971/1976
̶The fundamental attributes of the regime
−Adjustment – fixed but adjustable exchange rates, short term relief by the IMF, capital controls
−Liquidity – gold, IMF credit, de facto USD
−Confidence – gold as real money, US hegemony, multilateral cooperation (IMF WB)
−Management – multilateral via IMF, Articles of agreement, but mostly US dominance
−Rule change – multilateral conference coordinated by the IMF, US unilateralism
−Normative purpose – domestic economic autonomy, full employment, stable system to promote
international trade
̶Collapse of the regime
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IREn4004 International law and regimes

Adobe Systems
The post Bretton Woods system
̶Inception and development of the regime
̶1974/1979-2008/?
̶The fundamental attributes of the regime
−Adjustment – deficit countries adjust by external or internal devaluation, debts have to be paid
in full, de facto partial debt relief
−Liquidity – IMF credit, in systemic crises FED
−Confidence – US hegemony, network dependence on USD, no viable alternative
−Management – IMF (Articles of agreement), G7, G20, BIS, eurozone, US unilateralism
−Rule change – G7/20 meetings, BIS rules – Basel I-III, EU summits, US unilateralism
−Normative purpose – price stability, protection of creditors interests (investment)
̶Collapse of the regime?
IREn4004 International law and regimes

Adobe Systems
The current regime and future prospects
̶Great financial crisis
̶Rising Chinese economic powe
̶The fundamental attributes of the regime
−Adjustment – mounting pressure on surplus countries?
−Liquidity – enhance the role of SDR, regional hegemony of USD and RNB?
−Confidence – multilateral agreement or regional hegemony?
−Management – multilateralism, od regional spheres of influence?
−Rule change - ?
−Normative purpose - ?
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IREn4004 International law and regimes