INTERNATIONAL MONETARY SYSTEM

INTRODUCTION :
- International monetary systems are set of internationally agreed
rules, conventions and supporting institutions, that facilitate
international trade, cross border investment and generally the
reallocation of capital between nations state.
- The rules and procedures for exchanging national currencies are
collectively known as the international monetary system.
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EVOLUTION OF IMS:

- Bimetallism: Before 1875

- Classical gold standard: 1875-1914
- Interwar period: 1915-1944
- Bretton wood system: 1945-1972
- The flexible exchange rate:1973- present
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EVOLUTION OF IMS: Bimetallism: Before 1875

- A “double standard” in the sense that both gold and silver used as
money .
- Some countries were on the gold standard, some on the silver
standard, some of both.
- Both gold and silver were used as a international means of payment
and the exchange rates among currencies were determined by either
gold or silver content.
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EVOLUTION OF IMS: Classical gold standard: 1875-1914

- During this period in most major countries:

- gold alone was assured and unrestricted coinage
- there was two way convertibility between gold and national
national currencies at a stable ratio.
- The exchange rate between two countries currencies would be
determined by their relative gold content.
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EVOLUTION OF IMS: Interwar period: 1915-1944

- Exchange rate fluctuated as countries widely used “predatory”

depreciations of their currencies as a means of gaining advantage in
the world export market.
- Attempts were made to restore the gold standard, but participants
lacked the political will to “follow the rules of the game”.
- The result for international trade and investment was profoundly
detrimental.
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EVOLUTION OF IMS: Bretton wood system: 1945-1972

- The Bretton Wood Agreement is the landmark system for monetary
and exchange rate management established in 1944.
- It was a system of monetary management established the rules for
commercial and financial relations among the United States, Canada,
Western Europe, Australia and Japan after this agreement.
- The Bretton Wood System was a remarkable achievement of global
coordination.
- It established the U.S. dollar as the global currency, taking the world
off the gold standard.
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EVOLUTION OF IMS: Bretton wood system: 1945-1972

- It created the world bank and international monetary fund.

- These two global organization would monitor the new system.
- Bretton Wood established America as the dominant power behind
these two organizations and the world economy.
- That’s because it replaced the gold standard with the U.S. dollar.
- After the agreement was singed, America was the only country with
the ability to print the dollars.
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European Monetary system

- Eleven European countries maintain exchange rates among their
currencies within narrow bands, and jointly float against outside
currencies.
- Objectives:
- to established a zone of monetary stability in Europe.
- to coordinate exchange rate policies with nor European countries
- to pave the way for the European monetary union.
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WORLD BANK
- An international organization to providing financing, advice and
research to developing nations to aid their economic advancement
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Objectives of WORLD BANK

- Providing long term capital to its members nations for economic
development and reconstruction
- Providing long term capital for improving the balance of payment
- Provided guarantee about loan granted by members nation
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Functions of WORLD BANK

- Granting reconstruction loan to war devastated countries
- Granting development loan to underdeveloped country
- Providing loan to government for agriculture, irrigation, power,
transport, water supply, educations, health, etc.
- Providing loan to private concerns for specified project
- Promoting foreign investment by guaranteeing loans provided by
other organization
- Encouraging industrial development