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单词 international monetary system
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international monetary system


international monetary system,

rules and procedures by which different national currencies are exchanged for each other in world trade. Such a system is necessary to define a common standard of value for the world's currencies.

The Gold and Gold Bullion Standards

The first modern international monetary system was the gold standard. Operating during the late 19th and early 20th cents., the gold standard provided for the free circulation between nations of gold coins of standard specification. Under the system, gold was the only standard of value.

The advantages of the system lay in its stabilizing influence. A nation that exported more than it imported would receive gold in payment of the balance; such an influx of gold raised prices, and thus lowered the value of the domestic currency. Higher prices resulted in decreasing the demand for exports, an outflow of gold to pay for the now relatively cheap imports, and a return to the original price level (see balance of tradebalance of trade,
relation between the merchandise exports and imports of a country. The concept first became important in the 16th and 17th cent. with the growth of mercantilism. Mercantilist theorists believed that a country should have an excess of exports over imports (i.e.
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 and balance of paymentsbalance of payments,
balance between all payments out of a country within a given period and all payments into the country, an outgrowth of the mercantilist theory of balance of trade.
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).

A major defect in such a system was its inherent lack of liquidity; the world's supply of money would necessarily be limited by the world's supply of gold. Moreover, any unusual increase in the supply of gold, such as the discovery of a rich lode, would cause prices to rise abruptly. For these reasons and others, the international gold standard broke down in 1914.

During the 1920s the gold standard was replaced by the gold bullion standard, under which nations no longer minted gold coins but backed their currencies with gold bullion and agreed to buy and sell the bullion at a fixed price. This system, too, was abandoned in the 1930s.

The Gold-Exchange System

In the decades following World War II, international trade was conducted according to the gold-exchange standard. Under such a system, nations fix the value of their currencies not with respect to gold, but to some foreign currency, which is in turn fixed to and redeemable in gold. Most nations fixed their currencies to the U.S. dollar and retained dollar reserves in the United States, which was known as the "key currency" country. At the Bretton Woods international conference in 1944, a system of fixed exchange rates was adopted, and the International Monetary FundInternational Monetary Fund
(IMF), specialized agency of the United Nations, established in 1945. It was planned at the Bretton Woods Conference (1944), and its headquarters are in Washington, D.C.
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 (IMF) was created with the task of maintaining stable exchange rates on a global level.

The Two-Tier System

During the 1960s, as U.S. commitments abroad drew gold reserves from the nation, confidence in the dollar weakened, leading some dollar-holding countries and speculators to seek exchange of their dollars for gold. A severe drain on U.S. gold reserves developed and, in order to correct the situation, the so-called two-tier system was created in 1968. In the official tier, consisting of central bank gold traders, the value of gold was set at $35 an ounce, and gold payments to noncentral bankers were prohibited. In the free-market tier, consisting of all nongovernmental gold traders, gold was completely demonetized, with its price set by supply and demand. Gold and the U.S. dollar remained the major reserve assets for the world's central banks, although Special Drawing RightsSpecial Drawing Rights
(SDRs), type of international monetary reserve currency established (1968) by the International Monetary Fund (IMF). Created in response to worries concerning the limitations of gold and dollars as the sole means of settling international accounts, SDRs
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 were created in the late 1960s as a new reserve currency. Despite such measures, the drain on U.S. gold reserves continued into the 1970s, and in 1971 the United States was forced to abandon gold convertibility, leaving the world without a single, unified international monetary system.

Floating Exchange Rates and Recent Developments

Widespread inflation after the United States abandoned gold convertibility forced the IMF to agree (1976) on a system of floating exchangeexchange,
mutual transfer of goods, money, services, or their equivalents; also the marketplace where such transfer occurs, such as a stock exchange or a commodity exchange (see commodity market).
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 rates, by which the gold standard became obsolete and the values of various currencies were to be determined by the market. In the late 20th cent., the Japanese yen and the German Deutschmark strengthened and became increasingly important in international financial markets, while the U.S. dollar—although still the most important national currency—weakened with respect to them and diminished in importance. The euro was introduced in financial markets in 1999 as replacement for the currencies (including the Deutschmark) of 11 countries belonging to the European UnionEuropean Union
(EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community (EC), an economic and political confederation of European nations, and other organizations (with the same member nations)
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 (EU); it began circulating in 2002 in 12 EU nations (see European Monetary SystemEuropean Monetary System,
arrangement by which most nations of the European Union (EU) linked their currencies to prevent large fluctuations relative to one another. It was organized in 1979 to stabilize foreign exchange and counter inflation among members.
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), and additional EU members have since adopted it. The euro replaced the European Currency Unit, which had become the second most commonly used currency after the dollar in the primary international bond market. Many large companies use the euro rather than the dollar in bond trading, with the goal of receiving a better exchange rate. The record deficits incurred by the United States in the wake of the financial crisis that began in 2007 and the resulting weaker dollar led many central banks to diversify their foreign reserves and greatly increase the percentage held in yen and euros. The growing economic importance of China in the 21st century led, by 2013, to its currency (the renminbi, whose main unit is the yuan) displacing the euro as the second most commonly used currency in world trade.

Bibliography

See T. Agmon et al., ed., The Future of the International Monetary System (1984); R. D. Horman, Reforming the International Monetary System: From Roosevelt to Reagan (1987).

international monetary system


International monetary system

The global network of government and commercial institutions within which currency exchange rates are determined.

International Monetary System

In foreign exchange, the complete network of governments and institutions that affect currencies. The system has a set of agreed-upon rules that allows for international trade of goods and services. It is important to note that one government's decisions may affect the international monetary system. For example, many countries peg their currencies to the U.S. dollar; when the Federal Reserve makes changes to American monetary policy, it affects those currencies as well. Likewise, import and export laws and decisions on the convertibility of currencies have sometimes significant effects on the international monetary system. See also: Bretton Woods.
International monetary systemFig. 98 International monetary system. Types of international monetary system.

international monetary system

a system for promoting INTERNATIONAL TRADE and SPECIALIZATION while at the same time ensuring long-run individual BALANCE OF PAYMENTS EQUILIBRIUM. To be effective, an international monetary system must be able to:
  1. provide a system of EXCHANGE RATES between national currencies;
  2. provide an ADJUSTMENT MECHANISM capable of removing payments imbalance;
  3. provide a quantum of INTERNATIONAL RESERVES to finance payments deficits. In addition, because of the structural weaknesses of some countries, particularly DEVELOPING COUNTRIES, financial aid facilitates are required to help resolve problems of indebtedness (see INTERNATIONAL DEBT).

The three functions identified above are highly interrelated, and a crucial role is played by the degree of fixity or flexibility built into the exchange rate mechanism, as Fig. 98 indicates. Thus, if exchange rates are rigidly fixed (see FIXED EXCHANGE RATE SYSTEM), balance of disequilibriums can only be removed by internal price and income adjustments (see BALANCE OF PAYMENTS EQUILIBRIUM), and countries will need to hold large stocks of international reserves to cover deficits while the necessary adjustments are given time to work. By contrast, where exchange rates are free to fluctuate in line with market forces (FLOATING EXCHANGE RATE SYSTEM), continuous external price adjustments will work to remove incipient imbalances before they reach serious proportions, thus reducing countries’ reserve requirements. Various international monetary systems have been tried, including the GOLD STANDARD and, currently, the INTERNATIONAL MONETARY FUND system. See EUROPEAN MONETARY SYSTEM.

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