The International Monetary System

The amplified unpredictability of exchange rates is one of the foremost economic developments of the past 40 years. Policies for forecasting and responding to exchange rate fluctuations are still sprouting. Although impulsive exchange rates increase risk, they also create profit opportunities for firms and investors.

The international monetary system is the erection within which foreign exchange rates are dogged,international trade and capital flows are lodged, and the balance-of-payments regulations are made. All of the mechanisms, bodies, and arrangements that bond together the world’s currency, money markets, securities, real estate, and commodity markets are also incorporated within that term. 

The history of the world’s international monetary system is outlined by the following:

• The Gold Standard 1880–1914
• The Interwar Period 1918–1939
• The Gold Exchange Standard 1944–1970
• The Transition Years 1971–1973
• Floating Exchange Rates Since 1973

Today, all exchange rate systems must compact with the tradeoff between guidelines and preference (upright), as well as between collaboration and liberation (parallel). The pre WWI Gold Standard requisite observance to rules and allowed independence. The Bretton Woods agreement (and to a certain extent the EMS) also required adherence to rules in addition to cooperation. The present system is pigeonholed by no rules, with varying notches of collaboration. Many believe that a new international monetary system could prosper only if it combined cooperation among nations with individual preference to pursue domestic social, economic, and financial goals.

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