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In this chapter, students will be able to understand: Describe the historical development of the modern global monetary system, explain the role played by the World Bank and the IMF in the international monetary system, compare and contrast the differences between a fixed and a floating exchange rate system,. | International Business 9e By Charles W.L. Hill McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 The International Monetary System What Is The International Monetary System? International monetary system - the institutional arrangements that govern exchange rates A floating exchange rate system exists when a country allows the foreign exchange market to determine the relative value of a currency A pegged exchange rate system exists when a country fixes the value of its currency relative to a reference currency A dirty float exists when a country tries to hold the value of its currency within some range of a reference currency such as the U.S. dollar A fixed exchange rate system exists when countries fix their currencies against each other at some mutually agreed on exchange rate What Was The Gold Standard? The gold standard refers to a system in which countries peg currencies to gold and guarantee their convertibility in the 1880s, most nations followed the gold standard $1 = 23.22 grains of “fine” (pure) gold the gold par value refers to the amount of a currency needed to purchase one ounce of gold LO1: Describe the historical development of the modern global monetary system. Why Did The Gold Standard Make Sense? The great strength of the gold standard was that it contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries The gold standard worked well from the 1870s until 1914 but, many governments financed their World War I expenditures by printing money and so, created inflation People lost confidence in the system By 1939, the gold standard was dead What Was The Bretton Woods System? In 1944, representatives from 44 countries met at Bretton Woods, New Hampshire, to design a new international monetary system that would facilitate postwar economic growth Under the new agreement a fixed exchange rate system was established all currencies were fixed to gold, but only the U.S. . | International Business 9e By Charles W.L. Hill McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 The International Monetary System What Is The International Monetary System? International monetary system - the institutional arrangements that govern exchange rates A floating exchange rate system exists when a country allows the foreign exchange market to determine the relative value of a currency A pegged exchange rate system exists when a country fixes the value of its currency relative to a reference currency A dirty float exists when a country tries to hold the value of its currency within some range of a reference currency such as the U.S. dollar A fixed exchange rate system exists when countries fix their currencies against each other at some mutually agreed on exchange rate What Was The Gold Standard? The gold standard refers to a system in which countries peg currencies to gold and guarantee their convertibility in the 1880s,
