Evolution Of International Monetary System

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EVOLUTION OF INTERNATIONAL MONETARY SYSTEM

Evolution of International Monetary System

Evolution of International Monetary System Support Mechanisms

Introduction

Knowledge of the international monetary and financial system opens up great opportunities for studying the global economy. The evolution of changes in the global currency system must be traced in order to better understand the country's international relations. Money is an integral part of the financial relations between the countries, therefore it makes sense to consider what determines the exchange rate and how it is formed and affect the country's international relations. One of the main tasks is reviewing the international monetary and financial organizations, which has a large influence on the development of the country.

The international monetary system is a set of institutional arrangements for determining the exchange rates between currencies, to accommodate the flow of international trade and capital, and make necessary adjustments in balances of payments of different countries. The International Monetary System (IMS) is a historical form of organization of international monetary relations and fixed interstate agreements. The main objective of the monetary system is the mediation of international payments. International monetary system performs the function of world's money. The world's money appears as a norm of value, medium of exchange, means of payment, and a means of accumulating wealth (West, 1987, 76).

Discussion

Characteristics of International Monetary System

An important characteristic of this system is its ability to create international liquidity is related to the set of international assets held by central banks that can be used to offset shortfalls in balances of payments and maintain a certain parity of their currencies. In modern times, the international reserves are composed of gold, convertible foreign exchange reserve position to the IMF and SDR.

Another feature of this system is its ability to regulate imbalances through the management of fixed exchange rates and variables. The mechanisms used are flexible exchange rates, system of fixed exchange rates, changes in price or income, direct controls, the changes in reserves and floatation system (Meese, 1983, 24).

This system is considered to be the most appropriate during the time of constant flows and movements of money and resources. It generates problems such as uncertainty, instability of exchange rate changes up or down which promotes destabilizing speculation of certain actors such as banks or countries that possess strategic resources (oil case). It also promotes lack of solidarity that brings about a change in economies and international exchange rates causes more problems for small countries that the powerful. But it must be noted that although these disadvantages faced by many Third World countries, this system also promotes the benefits among all countries in the political autonomy within each one of them with the consequent greater freedom in their guidelines International Trade, also isolating and avoiding inflationary tendencies that states have international liquidity problems (Goldstein, 1985, 1105).

Gold Standard

The International Monetary System has had throughout its history different types of operation, the oldest is known as the "gold standard", this had the advantage of providing stability to the gold coins because it builds confidence which ...
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