International monetary systems
International monetary systems are sets of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected. The systems can grow organically as the collective result of numerous individual agreements between international economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944. Historical overview
Throughout history, precious metals such as gold and silver have been used for trade, termed bullion, and since early history the coins of various issuers – generally kingdoms and empires – have been traded. The earliest known records of pre - coinage use of bullion for monetary exchange are from Mesopotamia and Egypt, dating from the third millennium BC. Its believed that at this time money played a relatively minor role in the ordering of economic life for these regions, compared to barter and centralised redistribution - a process where the population surrendered their produce to ruling authorities who then redistrubted it as they saw fit. Coinage is believed to have first developed in China in the late 7th century, and independently at around the same time in Lydia, Asia minor, from where its use spread to near by Greek cities and later to the rest of the world. Sometimes formal monetary systems have been imposed by regional rules. For example scholars have tentatively suggested that the ruler Servius Tullius created a primitive monetary system in the archaic period of what was to become the Roman Republic. Tullius reigned in the sixth century BC - several centuries before Rome is believed to have developed a formal coinage system. As with bullion, early use of coinage is believed to have been generally the preserve of the elite. But by about the 4th century they were widely used in Greek cities. Coins were generally supported by the city state authorities, who endeavoured to ensure they retained their values regardless of fluctuations in the availability of whatever base precious metals they were made from. From Greece the use of coins spread slowly westwards throughout Europe, and eastwards to India. Coins were in use in India from about 400BC, initially they played a greater role in religion than trade, but by the 2nd century had become central to commercial transactions. Monetary systems developed in India were so successful they continued to spread through parts of Asia well into the Middle Ages. As multiple coins became common within a region, they have been exchanged by moneychangers, which are the predecessors of today's foreign exchange market. These are famously discussed in the Biblical story of Jesus and the money changers. In Venice and the Italian city states of the early Middle Ages, money changes would often have to struggle to perform calculations involving six or more currencies. This partly let to Fibonacci writing his Liber Abaci where he popularised the use of Arabic numerals which displaced the more difficult roman numerals then in use by western merchants.
Historic international currencies. From top left: crystalline gold, a 5th century BCE Persian daric, an 8th century English mancus, and an 18th century Spanish real. When a given nation or empire has achieved regional hegemony, its currency has been a basis for international trade, and hence for a de facto monetary system. In the West – Europe and the Middle East – an early such coin was the Persian daric, of the Persian empire. This was succeeded by Roman currency of the Roman...
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