International Monetary System and Balance of Payment
The exchange of goods and services can be dated back to the days of slavery when humans were traded in exchange for European fine arts. Subsequently the barter system was introduced at the national level in many countries.
However, as the trade market increased internationally, there needed to be a common exchange system that would be accepted by all trading countries. Gold was the demand and as such many countries accepted it as a common medium of exchange. Despite it acceptance on in the international market, many times there were discontentment between trade members as it was not a stable medium of exchange.
A major force that affects currency exchange rates is the Balance of Payments (BOP) of the various member countries. For this reason, governing bodies such as the IMF were established for member countries that may have difficulties keeping their Balance of Payment out of deficit. INTERNATIONAL MONETARY SYSTEM (IMS)
- The IMS could be defined as the establishment of rules, customs, practices and institutions that deal with money - debts, payments, investments - by which countries value and exchange their currencies internationally
- IMS exist because most countries have their own currencies and because it is necessary to have since businesses must be conducted across international barriers.
- IMS also provides a mechanism for correcting the imbalances between a country’s international payments and its receipts.
HISTORY OF INTERNATIONAL MONETARY SYSTEM
The IMS spans three historical periods beginning with the Gold Standard, which functioned in the 19th and 20th Centuries and culminating with the floating exchange rate system, which has been in operation since 1973.
During the gold Standard Era all business transactions were settled in gold. The United Kingdom became the first to adopt the Gold Standard in 1821 to be followed in the 19th Century by other countries such as Russia, France,