PRESENTATION : EXCHANGR RATE SYSTEM AND

ROLE OF IMF

• 16400920-124 SHAZRA
• 16400920-154 JAWARIA
• 16400920-139 IRAM
• 16400920-166 FIDA
 INTERNATIONAL
MONETARY SYSTEM
• It is the global network of the government
and financial institutions that determine
the exchange rate of different currencies
for international trade.
• Exchange rates are the amount of one
currency you can exchange for another.
• I US DOLLAR=151.46PAKISTANI RUPEES
 Evolution of the
International Monetary System

• Bimetallism : Before 1875

• Classical Gold Standard: 1875-1914
• Interwar Period: 1915-1944
• Bretton Woods System: 1945-1972
• The Flexible Exchange Rate Regime: 1973-
Present
 Bimetallism: Before
1875
• double standard
• Both gold and silver were used as
international means of payment and the
exchange rates among currencies were
determined by either their gold or silver
contents.
• Presence of bimetallic country.
• GERSHAM’S LAW
 Classical Gold Standard
• 1870’s-1914
• Three rules of gold standard
 Strength of gold
standard
• Monetary discipline
• Automatic balance of payment correction
• Automatic Exchange Rate correction
 collapse
• Due to first world war
• Excessive Currency printing
• Devaluation of currency
 INTER WAR PERIOD
• 1915-1944
• Gold standard was followed but it was not
classical.
• Sterilization of gold was followed.
Reasons for dead of gold standard dead by
end of word war II
• competitive devaluation
• restriction on export and import of good.
• Britain suspended its convertibity to gold.
 Bretton Wood System
• 1944-1973
• In 1944, representatives from 44 countries
met at Bretton Woods, New Hampshire, to
design a new international monetary
system that would facilitate postwar
economic growth
• Main elemnts of bretton wood agreement
 Established two
multinational institutions
• International Monetary Fund (IMF):

• World Bank:
 Strength of Bretton wood
agreement
• Stability of exchange rates
• Imposed discipline
 Collapse
• Devalued currencies against the dollar.
• President Nixon devalued the dollar
THE ROLE OF THE IMF
1. Discipline:
A fixed exchange rate regime imposes
discipline in two ways.
For example
2-Flexibility

3-By 2010, the IMF was giving loans

 WORLD BANK
• There are two ways to borrow from the
World Bank:
1. under the IBRD scheme,.
2 . through the International Development
Agency
 REASON FOR COLLAPSE
OF BRETTON WOOD
• Bretton Woods worked well until the late
1960s
• increases in welfare programs
• the Vietnam War financed
• speculation
• U.S. began to print money
Floating exchange rates
• new exchange rate system formed
• Three elements of floating exchange rate
 What Has Happened To
Exchange Rates Since 1973?
• exchange rates have been more volatile
and less predictable than they were
between 1945 and 1973 because of
Which Is Better – Fixed Rates Or
Floating Rates?
• Floating exchange rates provide
• But, a fixed exchange rate system
provide