Essay on International Monetary system

An international monetary system is a set of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. International monetary system has gone through different decades as a result of individual agreements among different countries’ partners (cato, 2019).

Below are those decades which International Monetary system has faced and prevailing today. These are in accordance with the specified era as given:

·         Bimetallism: Before 1875

·         Classical Gold Standard: 1875-1914

·         Interwar Period: 1915-1944

·         Bretton Woods System: 1945-1972

·         The Flexible Exchange Rate Regime: 1973-Present

·         The Current Exchange Rate Arrangements

In this Era, the value of monetary unit was used through creating a fixed exchange rate and in equal quantities of two metals i.e. (Gold and silver). Different ancient bimetallic systems follow, from Achaemenid coinage to Croseids, each one has been followed the other and so on.

At the end, there came into existence the Coinage Act of 1873 also known as Mint act of 1873 which ended not only the right of silver bullions holders and forced them to struck their metal into “Dollar coins” but also the “bimetallism” in United States through making “Gold standards”. The Coinage Act of 1873 or Mint Act of 1873, 17 Stat. 424, was a general revision of the laws relating to the Mint of the United States. The legislation, in addition to ending the production of the silver dollar, abolished three low-denomination coins.

Arguments was made against this in later years naming it “Crime of 73”

CRIME OF 1873 refers to the omission of the standard silver dollar from the coinage law of 12 February 1873. The sixty-seven sections of the law constituted a virtual codification of the then extant laws relating to the mints and coinage.

Under this System, the standard was based on fixed quantity of Gold and was used far and near in 19^th and early era of 20^th century as many countries rejected this system in 20^th century. In fact, that time many holds Enough Gold reserves.

This system facilitates in price stability for long term but was not in favor of governments as it was difficult to inflate prices through publishing reserve less money supply. The producer countries of Gold were having advantage of gold deposits.

The era between 1914-1939 was of great economic depression, effects of which prevail around a decade and still experiencing by different countries. The Investment in US banks was reduced and Gold reserves reduced.

 This all scenario gives birth to two ideas

Ø  Floating currency is necessary tool for govt.

Ø  Improper gold standard system (which are never explained properly)

This system assists through making “Dollar” as a payment method which was limited to “Gold”. Commercial and financial relations were created between world Giants through Bretton wood system after Bretton wood Agreement in 1944. This was specific example of its nature which allows monetary relations among independent states.

The salient feature of this system was creation of obligation for each country to adopt monetary policy to nurture its external exchange rates and allows IMF to facilitates as a temporary bridge during Payments issues.

730 delegates form 44 Nations were gathered in Bretton wood to attend this “Bretton Wood conference” and signed it on final days from 1-22 July 1944 and give birth to IMF and IBRD, which is a part of world bank group and become operational in 1945 after ratification of agreement by enough countries.

The Above system helps the exchange rates to be dealt according to the supply and demand. There is a need to make the decision regarding the exchange rates as per the currency of a specified country. There exist the heterogeneous methods in order to determine either the exchange rates with permanent fixation or the complete flexibility. For the said purpose the national bodies are required to take part in the foreign exchange markets (IMF, 2019).

 References of International Monetary system

cato. (2019). The Case for a New International Monetary System. Retrieved from https://www.cato.org/cato-journal/springsummer-2018/case-new-international-monetary-system

IMF. (2019). Classification of Exchange Rate Arrangements and Monetary Policy Frameworks. Retrieved from https://www.imf.org/external/np/mfd/er/2004/eng/0604.htm