The Specificity of the Jamaica Monetary System

The transition from the gold-exchange standard to a new system of currency relations took several years. After the first significant step - the stop exchanging dollars for gold - followed the next steps. In March 1973 floating exchange rates were introduced. Since 1974, all major currencies (the dollar, the pound sterling, the German mark, the yen, the French franc) floated freely in relation to each other. In the same year, "Special Drawing Rights" (the "SDR basket") has become the new standard of value of the currency. In 1976, the IMF decided not to fix the official price of gold by ceasing operations on it within the IMF, giving the right to national monetary authorities to manage their own gold of their own free choice. Finally, in 1978, the charter of the IMF has fixed the rejection of the fixed parities and the Jamaica monetary system was officially launched.

The main differences between the Jamaica monetary system and the Bretton Woods monetary system are as follows:

1. The carrier of world money has changed. If the Bretton Woods system used gold and reserve currencies as a final means of payment, then the new currency system bases on both the SDR (the collective currency of the IMF) and the ECU (the collective currency of the EU). These currencies have become an element in the structure of international liquidity.

2. The new currency system allows both fixed and floating exchange rates or their mixed version.

3. The presence of closed currency blocs, which, on one hand, are members of the world monetary system, and on the other hand, have special relationships between the member countries within them. The most typical example is the European Monetary System (EMS), which is a product of the EEC.

4. In the Jamaica monetary system the IMF's rights to oversee the exchange rates are extended. The IMF has developed the basic principles to be followed by the member countries during the exchange rate policy, so that the world monetary system as a whole functions effectively. The essence of these principles is as follows:

• the exchange rate should be economically justified. Countries should avoid manipulating exchange rates in order to avoid the need to regulate the balance of payments or gain an unfair competitive advantage;

• to intervene in order to smooth short-term significant chaotic currency fluctuations;

• to consider the interests of other countries during the interventions. The main criteria for determining whether a country satisfy these principles were developed .

The specific responsibilities were assigned to the IMF members: when selecting a new exchange rate regime it is necessary to inform the IMF; the cooperation between member countries and the IMF and between each other in solving of monetary problems; the national economic policy of the member states should contribute to the stabilization of exchange rates.

The Jamaica system provides the abolition of gold as an official international means of payment and a measure of value. The official price of gold has been abolished and demonetization of gold has begun, that is gold loses the function of money. Gold could be the national reserves, but all payments between the IMF and national monetary institutions are implemented only in SDR.

The principle of exchange rates regulation by market forces (supply and demand) was proclaimed as the theoretical basis of the Jamaica system. However, the free float (under the influence of market forces only) exchange rates were no longer able to function, as the integration process has led to entwinement of national reproduction processes; to an increasing subordination of national economies to the laws of the world economy; to the dependence on the processes occurring in the world economy, as well as in the monetary sphere. In such circumstances, it became impossible to create an optimal framework for the development of international trade without the coordination of the exchange rate policy. With "clean" floatation the balance-of-payments equilibrium has not been achieved as well. It also concerns the achievement of the autonomy of domestic economic policy. On the contrary, freely floating exchange rates have strengthened the relationship between exchange rates and domestic economic processes. Therefore, in the actual practice, the Jamaica monetary system operates as a system of managed floating exchange rate (with a tendency to increase in the monetary policies of individual countries the elements of "control").

Despite the fact that the Jamaica monetary system has a number of negative aspects, its operation has a significant impact on accelerating the pace of development of industrialized countries and many developing countries in the direction of further socio-economic integration.

 
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