International Monetary System refers to the system prevailing in world foreign exchange markets through which international trade & capital movements are financed & exchanges rates are determined.
MNCs operate in a global market, buying/selling/producing in many different countries. For example, GM sells cars in 150 countries, produces cars in 50 countries, so it has to deal with hundreds of currencies. What are the mechanics of how currency and capital flows internationally?
International Monetary System - Institutional framework within which:
1. International payments are made
2. Movements of capital are accommodated
3. Ex-rates are determined
An international monetary system is required to facilitate international trade, business, travel, investment, foreign aid, etc. For domestic economy, we would study Money and Banking to understand the domestic institutional framework of money, monetary policy, central banking, commercial banking, check-clearing, etc. To understand the flow of international capital/currency we study the IMS. IMS - complex system of international arrangements, rules, institutions, policies in regard to ex-rates, int'l payments, capital flows. IMS has evolved over time as int'l trade, finance, and business have changed, as technology has improved, as political dynamics change, etc. Example: evolution of the European Union and the Euro currency impacts the IMS. "Spontaneous Order."
HISTORY OF THE IMS
1. BIMETALLISM (pre-1875)
Commodity money system using both silver and gold (precious metals) for int'l payments (and for domestic currency). Why silver and gold? (Intrinsic Value, Portable, Recognizable, Homogenous/Divisible, Durable/Non-perishable). Why two metals and not one (silver standard or gold standard vs. bimetallism)? Some countries' currencies in certain periods were on either the gold standard (British pound) or the silver standard... [continues]
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