Introduction to the

International Monetary
System
The international monetary system refers to the framework of rules, policies,
and institutions that govern international monetary relations and exchange
rates. It plays a crucial role in facilitating global trade, investment, and
economic stability.

by Ketsia Ketsia Lombo

Historical Overview of the International
Monetary System
1 Barter System
The barter system was the earliest form of trade, where goods and services were
exchanged directly without a standard currency.

2 Adoption of Coinage
Coinage emerged in the ancient world, providing a standardized medium for trade
and economic transactions.

3 Development of Banking
Early banking systems and moneylenders played a crucial role in facilitating
international transactions and foreign exchange.
The Gold Standard
The gold standard was a monetary system where a country's currency or paper
money had a value directly linked to gold. This system was used in the 19th
and early 20th centuries and provided stability but limited monetary policy
flexibility.
The Bretton Woods system
• Establishment: Created in 1944, aimed to rebuild international economic infrastructure post-WWII.
• Fixed exchange rates: Member currencies were pegged to gold to maintain stability.
• World Bank and IMF: Established to foster global monetary cooperation and development.
The collapse of the Bretton Woods system

End of Dollar Convertibility

1
Undermined the fixed exchange rates

Global Currency Crisis

2
Resulted in major economic turmoil

Shift to Floating Exchange Rates

3
Started a new era in currency valuation

After the collapse of the Bretton Woods system, the end of dollar convertibility undermined the fixed
exchange rates, leading to a global currency crisis and major economic turmoil. This event prompted a
shift to floating exchange rates, marking a new era in currency valuation.
The rise of floating exchange rates
Transition from Fixed to Floating Impact on Global Trade

During the rise of floating exchange rates, Floating exchange rates increased flexibility in
countries moved away from fixed currency international trade, as currency values could
values, allowing the exchange rates to fluctuate adjust to economic conditions, affecting
based on market forces. import/export dynamics.
The role of the International Monetary
Fund (IMF)

Global Economy Financial Policy Advice Economic Reform

Assistance
The IMF plays a key Offering valuable
role in stabilizing and Providing financial policy advice and Assisting in
supporting the global assistance to expertise to member implementing and
economy. countries facing countries. sustaining economic
economic challenges reforms for stability.
and crises.
Objectives and functions of the IMF
The International Monetary Fund (IMF) aims to promote international monetary cooperation, exchange
rate stability, and balanced growth. It provides policy advice, financial assistance, and technical expertise
to its member countries.

Additionally, the IMF offers surveillance of the global economy, assessing financial stability, and assisting
in crisis prevention and resolution.
The Special Drawing Rights (SDR)
The Special Drawing Rights (SDR) is a supplementary international monetary reserve asset created by the
International Monetary Fund (IMF) in 1969 to supplement its member countries' official reserves. It is
neither a currency nor a claim on the IMF, but is instead a potential claim on the freely usable currencies
of IMF members.

204B 5
Total Value (in USD) Component Currencies
As of 2021 USD, EUR, JPY, GBP, CNY
The role of the World Bank
Financing Development Projects
The World Bank provides financial and
technical assistance to developing
countries for various development
projects such as infrastructure,
healthcare, and education.
Poverty Alleviation
Its goal is to reduce poverty by providing
low-interest loans, interest-free credit,
and grants to developing countries to
support economic development and
sustainability.

Promoting Sustainable Growth

The World Bank supports initiatives aimed at promoting environmentally sustainable
development and addressing climate change challenges in developing nations.