T H E I N T E R N AT I O N A L M O N E TA R Y S Y S T E M

AGENDA

• Definition • History • Fixed Vs. Floating • Coalitions • Roadmap • Q&A

DEFINITION

• 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.

H I S T O R Y O F T H E M O N E TA R Y S Y S T E M

Gold Standard
1870 1944

Nixon Shock
1971 1976

Bretton Woods

Jamaica Agreement

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• When International trade was limited in volume, payment

for goods purchased from another country was made in gold or silver.

• As the volume of international trade expanded in the wake

of the Industrial Revolution, a more convenient means of financing international trade was needed.

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• The solution adopted was to arrange for payment in paper

currency and for governments to agree to convert the paper currency into gold on demand at a fixed rate.

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• 1880: Most of the world’s trading nations including Great

Britain, Germany, Japan, and USA adopted the Gold Standard.

•

Given the Gold Standard, the value of any currency in units of any other currency was easy to determine.

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• The Gold Standard acts as an adjustment mechanism,

which achieves the Balance-of-Trade Equilibrium.

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1870

1914

1925

1934

1939

Introduction of the Gold Standard

Britain pegged the pound to gold at the pre-war parity level. This priced British goods out of the foreign markets pushing the country into a deep depression

Gold Standard was dead

The Gold Standard was abandoned as several governments financed their massive military