history+of+international+monetary+system

8/4/2019 History+of+International+Monetary+System

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History of

Internationalmonetary systemGold standard : Where gold was used as a reservemoneyBrettonwoods monetary arrangements wherepound , dollar and gold were used as a reservemoneyPost Brettonwoods monetary arrangement wheregold was dethroned and dollar is being used as areserve asset


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Era of gold standard

Firms buy and sell their currencies in exchangeof gold.

Gold standard effectively created a fixedexchange rate system.

Exchange rate is the price of one currency inexchange of another currency

Fixed exchange rate system: The price of agiven currency doesn't change relative to eachother currency. The gold created a fixedexchange rate system.


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The Brettonwood era:

In1944 under united nations , a monetary conferenceheld at Brettonwood (New Hampshire, USA). Thepurpose of this conference was to devise international

financial and monetary system. In this conference the white plane was approved , in this

respect three institutions were setup

1. International monetary fund

2. International Bank of Reconstruction & Development(IBRD)

3. International Trade organization (ITO)


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International Monetary System

This important organization was set-up with theaim of encouraging economic co-operationbetween the nations of the world. There are nowmore than 140 member countries

It is describe as fund because it holds stock ofnational currencies , each member country isobliged to contribute a certain amount a quota-of its own currency to the fund .Rich countriescontribute more than poor countries , membercountries may borrow foreign currencies fromthis fund.


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Aims of International Monetary

System Encouraging countries to make their currencies

convertible

Encourage countries to to keep their exchangerates stable


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How the value of rupee might fall?1. The Pakistan demand for American goods or services

increases2. Pakistani residents offer more rupees in exchange of

dollar3. In the foreign exchange market the supply of rupeeincreases and demand for dollar increases

4. The value of rupee in term of $ falls5. The rupee buys fever $ and the $ buy more rupees

6. i.e. Exchange rate moves from rupee =75 $ to rupee1=86 $(Exchange value of the currency fall.depreciated)


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How the value of rupee might rise ?

1. American demand more Pakistani goods or servicesincreases

2. American residents offer more $ in exchange for rupee

3. In the foreign exchange market the supply of $increases and demand for rupee increases

4. The value of rupee in term of $ increases

5. The rupee buys more $ and the $ buys fever rupees

6. i.e. Exchange rate moves from rupee =86 $ to rupee1=75 $(When exchange value of the currency rises.appreciated)


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