Analysis On American Financial Crisis And Reform Of International Monetary System

Since the collapse of Bretton Woods System in 1970s,every ten years,it would have happened an global financial crisis,which all related to U.S dollar exchange depreciation and interest rates raising.Crisis itself is not only occasionality,but inevitability as well.Although the international society has profoundly reflected on it and made adventurous improvement technologically,crisis has come back again and again in some ways.Financial crisis is more and more dangerous after Bretton Woods System,and the whole world has given more than received due to the current International Monetary System.Not only the countries who use the reserve currencies have to pay high price,but also those who issue them.Crisis may not be the agencies'fault,but it is the inevitability indeed.The first part of the paper revives the history of the International Monetary System from Gold Exchange Standard System,and summarizes the birth ,characteristics and defects of the Gold Exchange Standard System,Bretton Woods System and Jamaica System.And the summary of the Jamaica System is superficialness,deep-seated discussion is in the third part.The second part of the paper introduces the causes of the American subprime mortgage crisis.The current financial crisis dues to the financing chain break of home mortgage loan.From 2001,lower interest rates stimulated the housing investment and huge capital poured into real estate.Bankers found the large profits and even advanced credit to the mortgagee of low credibility.Those loans were packed into securities with trust level high by national credit institutions and sold them out all over the world.Raising the interest rates,so many mortgagees could not repaid the loads on schedule,which resulted in the subprime mortgage crisis.As international supervision institution,the International Monetary Funds(IMF),whose general headquarters is based on Washington.D.C of U.S.,could not be conscious of such high venture financial businesses.And after the crisis,member countries were not agree with the contentment of the salvages from IMF. Because of the crisis,the issue about the reform of international monetary system is discussed again among the international society.The third part of the paper stresses the reasons of international monetary system defects which resulted in the current financial crisis.First,gold threw U.S dollars off and demonetization after the Bretton Woods System,and the gold's valuation function was weaken.The current international monetary system's essential attribute is pure fiduciary money characteristic.The Impossible Trinity—in the open economy,monetary policy independence or autonomy,foreign exchange sterilization and free fovement of capital can not achieve three of them.While in order to develop,American can not give up its developing goal.And as the builder of free market and the advocator of financial integration,American can not restrict the capital flows but let exchange rate float.So the exchange rate mechanism lose its function and exchange rate fluctuating frequently,which resulted in several financial crisises.Second,economic globalization advocated by American from last century has changing the world economic structure dramatically,all kinds of market all over the world has been integrated.World trade has also stimulating the development of the international financial market,which developed faster than that of world trade.Money supply has not been controlled by the real economy.Integration of the international financial market looses the restriction of domestic saving investment balance,the relativity between saving and investment is weaken,leaving hidden troubles for the crisis.Finally,financial derivative instruments are created largely with financial market developing,which stimulate the financial market in turn.But many more financial derivative instruments are created again because of high capital profits,which results in higher,dangers.But there are no rigid legal regulations, effective risk supervision and accurate financial early warning system based on current international monetary system.During this crisis,the whole world were supplying the money and assuming the risk for the Wall Street.The fourth part of the paper make a feasibility analysis on the reform of current international monetary system.The writer consider that the world economic situation has being changed with the development of the international economy as well as the economic capabilities.It is an unchanged direction to international monetary system reform.But in the short term,it is early to make an absolute reform and the reason as follows:First,American power is so strong that it is hard to shake the American position in the current international monetary system although its position is no longer as stable as before.Also,American can not give up its leading position in order to its self-interests.Second,reform has difficulties in the price.People would not like to spend much cost or time on negotiating to establish a new monetary system.Only when the potential benefits from new system are more than the cost whose aim is to attain them,in other words,the economic loss caused by current monetary system is larger than the cost of new system establishment,institutional transition may come out.Finally, financial globalization promote the capital markets integration,which will results in the integration and standardization of all countries' economic policies,developing modes and economic goals,etc.All kinds of coordination mechanism will function stably and effectively,which benefits the development of global capital markets.The fifth part of the paper considers that the crisis is an opportunity of reform for the current international monetary system.Different interest groups hold similar opinions or absolutely different advices in each own situation.This is the game between developed countries and developing countries in the new international economic position.The writer conclude four advices of the reform,and I stress the importance of establishing regional monetary union like European Union,which is the sample for future reform.In the last part of the paper, combining the Chinese practices,I analysis the impacts of the crisis to our capital market. International capital dramatic flows will cause exchange rates fluctuation.And global liquidity strain will increase our credit risk,and have impact on our economic entities.In the exchange market, the American government will bailout and increase the deficit,and afflux liquidity,which will cause large supplement of base money and medium and long term exchange rates will unbelievable.All of this will influence our foreign exchange reserves which are mostly existed in the way of American securities.At last,according to the international position,I give some advices on our capital market:①Playing the role of economic policy flexibly.②Ensuring stabilization of RMB exchange rate.③Strengthening the regulation of current account.④Executing internationalization strategy solidly.