Course: Name
Monetary System In The U.S. And In Foreign Countries Yours Name Professor’s Name [optional] DOS: University

Table of Contents

Introduction 3 Types of Monetary Policies 4 Different monetary terms that were used and are still used 4 Federal Reserve System and concerned problems 6 The problems with the system 7 Conclusions 8 References 10

Introduction
The U.S. Government provides money in a country's economy with the help of a set of institutions known as monetary system. To facilitate international trade, global investment and generally the reallocation of capital between nation states the term international monetary system came into existence. Which help buyers and sellers to communicate more effectively by providing the acceptable means of payment.
Now getting towards US monetary system, the United States dollar used to be backed by gold, but in 1971 the US officially withdrew its promise to convert dollars into gold. The US dollar is now considered fiat money because the value of the dollar is derived from legal tender laws that require people to accept dollars as payments of debt. There is no physical limit regarding the amount of unbacked dollars that can be created, because of which there is very little preventing inflation of the US money supply.
The Continental Congress issued the first unified currency during the Americal Revolution, which was declared redeemable in gold and silver. Because of excessive printing of notes over metal reserves during world war, redemption became almost nil and the notes lost their value. Which forced U.S. Government to start looking at more strong and stable monetary policy.
In 1792, Congress was given the power to create and establish a national monetary system, during which Congress passed the Coinage Act and made the dollar the nation’s primary monetary unit. It was basically based on the use of gold and silver reserves, but adjustments occurred frequently. Today, United States is working on monetary system that is no longer based wholly on metals. The Federal Reserve carries out monetary policy that stabilizes the rate of growth in the money supply which, in turn, boost the economy and try to stop inflation.
Types of Monetary Policies
The main function of monetary policy is to regulate credit money as well as to regulate it. There are 2 types of Monetary Policies existing (Mike Moffat, 2014) : I. Expansionary Monetary Policy; II. Contractionary Monetary Policy.
Expansionary Monetary Policy: Expansionary monetary policy is suitable when the economy is in recession and unemployment is one of the major problems. The main goal of expansionary monetary policy is to make jobs. Therefore the possible solution would be an increase in the money supply for which the federal government can lower the reserve ratio, interest rates and buy Government Bonds.
Contractionary Monetary Policy: It is best suitable when the economy is in expansion and inflation is a problem. The main goal of contractionary monetary policy is to reduce inflation. This could be achieved by a decrease in the money supply. To do so the federal reserve can: Increase Interest rates, reserve ratio and sell Government Bonds.
Different monetary terms that were used and are still used 1) Barter system:
Barter was the practice used when money was not in existence. To trade, people used to exchange goods. Today, people who need to save money follow this practice, but it’s very rare. 2) Checks:
Notes written for money that is availed on demand deposits and used to pay bills and for the purchase of services and goods. 3) Coinage:
Any metallic device that circulates as money for trade of goods and services such as the silver dollar, gold, dollar, penny, nickel, dime, quarter, half dollar. 4) Credit:
A way of purchasing goods and services using the promise/ agreement of payment in future. Without it, there would be a colossal slowdown of most economies worldwide. Today, the use of credit is one of the most widely used tools of business and as savings and investment vehicles for average people. 5) Currency or Legal Tender:
When we use objects such as dollar bills and other paper notes, coins, and checks, for payment of debt or to purchase goods and services. 6) Federal Reserve System:
Introduced under the Federal Reserve Act of 1913, it allowed the creation of 12 regional Federal Reserve Banks around the country to foster economic stability when it is prudent, improve purchasing power, and to carry out U. S. monetary policies. 7) Gold Bullion:
Here the value of money is determined by a specific quantity of gold which is convertible in countries like Indian monetary system.

8) Greenbacks:
This term is used for paper money, which was issued during the civil war and is still being used to denote different denominations of bills. 9) Money:
A medium of exchange that is widely used for the payment of public and private debts, goods and. The assessment of its value is done by its purchasing power.
Federal Reserve System and concerned problems
The Federal Reserve System (also referred as “The Fed”) is the Central Bank of the U.S. It came into existence to fulfill the need of more stable monetary and financial system. On December 23, 1913, Federal Reserve was created by President Woodrow Wilson after signing the Federal Reserve Act into law.
The Federal Reserve’s responsibility can be summarized as : * Carry out the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. * Supervising and regulating the guidelines to banks and other important financial institutions which ensures the safety and soundness of the country’s banking and financial system and to guard the credit rights of consumers. * Maintaining the stability of the nation’s financial system and restrain systemic risk that may arise in financial markets. * Providing financial services to the U.S. government, financial institutions, and foreign official institutions, and playing a major role in operating the nation's payment systems.
Federal Reserve act as a fiscal agent for the government. It handles the reserve accounts of commercial banks, provide loans to them and also oversees the supply of currency and coins in coordination with U.S. Mint. The 7 Board members of the Federal Reserve System evaluate the requirements of the other banks within statutory limits and guidelines. They also review as well as determine the discount rates, which are established by the core 12 Federal Reserves banks. Board members also review the budget of a reserve bank. The Chairman is appointed by the President of U.S.
The Federal Reserve has a regulatory power of direct and indirect control.
In Direct Control they the Federal Reserve can adjust the legal reserve ratio (proportion of deposit which the member bank must hold in its reserve account) which makes increase or decrease of the amount of new loans possible.
Indirect Control is done through open market operations by, for example, sales and purchase of securities in the open market. It tends to increase or reduce bank reserves.
The problems with the system
"It is inevitable that any monetary policy pursued by issuers will be relatively better for some at the expense of others" – Stephen Yearwood
In theory, inflation occurs when The Federal Reserve supply money to the banks and that would be eventually reversed as the loan paid back. But this never happens in reality because new loan comes into existence faster than loans are paid back.
The absence of physical limits on inflating the money supply enables excessive government spending and debt. In the United States and other countries with current account deficits, borrowing too often resulted in excessive spending on housing and consumption instead of financing productive investment.
With the pace financial system is evolving, regulators sometime failed to recognize the mounting vulnerabilities, which resulted in recent & previous financial crisis and subsequent recession. Which was also a result of breakdowns in lending oversight by investors, inadequacies in risk management by private banks and use of opaque financial products.
Conclusions
The conclusion I draw is there is a need to further strengthen our monetary system and financial system not only for U.S. but for the global economy. Better implementation of policies over national financial sectors can help in improving international financial system.
In a globalized economy with complex and strong cross-border linkages, sometimes national financial system can face some serious international repercussions. All countries should come together to study the weakness and problems in the global financial system and resolve it.
Our International monetary system does not fulfill the objectives of Open capital accounts which is supported by appropriate financial supervisions and guidelines/regulations thereby enhancing welfare. Currently, some economies have flexible exchange rates where some other heavily manages their exchange rates, making International monetary system hybrid and asymmetric.
I would conclude by saying that we should continue working towards an international monetary system which supports more flexible rates, which will take time requiring an internal shift of resources across sectors, independent monetary policies and open capital accounts that will help out during global inbalance.

References
Introduction -> http://www.investopedia.com/terms/f/fiatmoney.asp
<http://www.energybackedmoney.com/chapter1.html>
Handbook of Development Economics, Elsevier. 2010 , Types of Monetary Policies.
Federal reserve system Retrieved from <http://www.federalreserveonline.org/>
<http://www.federalreserve.gov/pf/pdf/pf_2.pdf>