international monetary system

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International monetary system

The global network of government and commercial institutions within which currency exchange rates are determined.

International Monetary System

In foreign exchange, the complete network of governments and institutions that affect currencies. The system has a set of agreed-upon rules that allows for international trade of goods and services. It is important to note that one government's decisions may affect the international monetary system. For example, many countries peg their currencies to the U.S. dollar; when the Federal Reserve makes changes to American monetary policy, it affects those currencies as well. Likewise, import and export laws and decisions on the convertibility of currencies have sometimes significant effects on the international monetary system. See also: Bretton Woods.
International monetary systemclick for a larger image
Fig. 98 International monetary system. Types of international monetary system.

international monetary system

a system for promoting INTERNATIONAL TRADE and SPECIALIZATION while at the same time ensuring long-run individual BALANCE OF PAYMENTS EQUILIBRIUM. To be effective, an international monetary system must be able to:
  1. provide a system of EXCHANGE RATES between national currencies;
  2. provide an ADJUSTMENT MECHANISM capable of removing payments imbalance;
  3. provide a quantum of INTERNATIONAL RESERVES to finance payments deficits. In addition, because of the structural weaknesses of some countries, particularly DEVELOPING COUNTRIES, financial aid facilitates are required to help resolve problems of indebtedness (see INTERNATIONAL DEBT).

The three functions identified above are highly interrelated, and a crucial role is played by the degree of fixity or flexibility built into the exchange rate mechanism, as Fig. 98 indicates. Thus, if exchange rates are rigidly fixed (see FIXED EXCHANGE RATE SYSTEM), balance of disequilibriums can only be removed by internal price and income adjustments (see BALANCE OF PAYMENTS EQUILIBRIUM), and countries will need to hold large stocks of international reserves to cover deficits while the necessary adjustments are given time to work. By contrast, where exchange rates are free to fluctuate in line with market forces (FLOATING EXCHANGE RATE SYSTEM), continuous external price adjustments will work to remove incipient imbalances before they reach serious proportions, thus reducing countries’ reserve requirements. Various international monetary systems have been tried, including the GOLD STANDARD and, currently, the INTERNATIONAL MONETARY FUND system. See EUROPEAN MONETARY SYSTEM.

References in periodicals archive ?
Bernanke (2012a; 2012b) only discusses fixed exchange rates in the context of central banking and fails to acknowledge the benefits of the price-specie-flow mechanism that accompany an international gold standard. Second, Bernanke (2012a, p.
The dismantlement of the international gold standard, temporarily at the outbreak of World War I and permanently in the course of the Great Depression, marked the end of "classical" financial crises: no longer was there a Humean price-specie-flow mechanism to snap back to equilibrium the national monetary systems that had temporarily escaped beyond the mechanism's confines.
The Federal Reserve was also required by the rules of the international gold standard to exchange dollars for gold.
One was the international gold standard. The other was the commercial lending principles of the Bank of England, known as the real bills doctrine.
Like Eichengreen, he suggests that the international gold standard itself was one of the major factors underlying and reinforcing the Great Depression, since "the conditions that had sustained it before the war no longer existed." [29] Temin agrees with Wicker that Strong's fundamental commitment to the gold standard precluded any likelihood that he would have done better than his successors in countering the Great Depression.
The final link to gold was cut in 1971, when the world went off the international gold standard and permitted exchange rates to fluctuate freely, driven by the demand for and supply of a currency.
Support for the international gold standard likely grew because it provided improved access to the international capital markets of the core countries.
The cause of the Depression is the impact of the First World War--its effects on industrial and commodity production, but also its fiscal aftermath--on the international gold standard. The gold standard led to the sterility of what Temin calls "the Midas touch." Government fiscal policy undermined consumption in Germany and the United States.
The international gold standard did not function ideally, however.
TRIBUNE NEWS NETWORK DOHA Hamad International Airport (HIA) is proud to announce that it has achieved ISO/IEC 20000:2011 certification, the international gold standard for excellence in IT Service Management.
The Breast Care Clinic provides patients with a special evaluation that is currently the international gold standard for breast cancer diagnosis.
The triple assessment test is a special evaluation that is currently the international gold standard for thorough and accurate breast cancer diagnoses.

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