The international monetary

system

Presented by: - IMMAS Aicha

- El guasmi Abdelouahed
Problematic
What is the current orientation of the
international monetary system ?
 Table of contents
01 02 03
What is IMS ? Features that IMS Requirements of good
should possess IMS

04 05 06
Evolution of the
international monetary The future of the IMS Evolution of money
system
 What is money ?

Money is a current medium of exchange in the form

of coins and banknotes ,that is generally accepted as 
payment for goods and services and repayment of 
debts in a given country or socio-economic context.
 Fonctions of money

Medium of exchange : money used for buying and selling goods

and services

unit of account : common standard for measuring relative worth

of goods and services

store of value : convenient way to store wealth

 INTERNATIONAL MONETARY SYSTEM

The IMS refers to the institutional arrangements that countries

adopt to govern exchange rates. They are sets of
internationally agreed rules, conventions and supporting
institutions that facilitate international trade, cross border
investment and generally the reallocation of capital between
nation
 Features that IMS should possess:
 flow of international trade
 investment according to comparative advantage
 stability in foreign exchange
 promoting balance of payments
 providing countries with sufficient liquidity
 plan for avoiding uncertainty
 allowing member countries to pursue independent
monetary and fiscal policies
 Requirements of good International Montery System

Stability and
Adjustment  Liquidity
confidence 

A good system should be able The system must be able to the system must be able to provide
to promptly and relatively maintain generally stable
enough reserve assets for a nation to
cheaply address balance of exchange rates, and individuals
correct its balance of payments
payments imbalances. must have faith in the system's
deficits without making the nation
stability
into deflation or inflation.
 History of Inetrnational Montery System

Before 1875 1875-1914 1915-1944 1945-1972 Since 1973

Bimetallism Classical Gold Interwar Period Bretton Woods Flexible

Standard System exchange rate
regime
Bimetallism: before 1875
Prior to 1870 many countries had
bimetallism, that is, a double standard in
that free coinage was maintained for both
gold and silver. The international monetary
system before 1870s can be characterized as
“bimetallism” in the sense that both gold
and silver were used as international means
of payment and that the exchange rates
among currencies were determined by either
their gold or silver contents.
 Classical Gold Standard:
1875-1914
 According to the gold exchange standard, only the United
State and the United Kingdom could hold gold reserves, while
other countries could hold both gold and U.S. Dollars or
British Pound.
 Under International Gold Standard system:
1. Gold alone is assured of unrestricted coinage.
2. There is two way convertibility between gold and currency.
3. Gold may be freely exported or imported.
 This system required each country to establish Parity with gold
 Or with currencies convertible to gold and the exchange rate
between currencies were fixed.
 Pound 1 = $ 5
Interwar Period: 1915-1944
● WWI ended the classical gold standard in
1914.
● Major country like Britain, France, Germany,
Russia etc. Suspended redemption of bank
notes in gold.
● Many country like Germany, Poland etc
suffered hyperinflation.
● Country devalued their currencies in order to
gain advantages in world export market.
● All these development hindered
international trade and also adversely
affected the global economic growth.
 Bretton Woods System: 1945-1972
 In 1944, the International Monetary Fund (IMF) was
created by an international agreement called the Bretton
Woods Agreement because it was signed at Bretton
Woods, New Hampshire.

 The objectives of IMF were to:

- Promote exchange rate stability
- Maintain orderly exchange rate arrangements
- Avoid competitive currency devaluations
- Assist in the elimination of exchange restrictions
- Create standby reserves

 This system required that each country should fix a par

value of its currency in relation to the U.S. Dollar, which
was pegged to gold at USD 35/ounce.
 Jamaican agreement
A new exchange rate system was established in 1976 at a meeting in
Jamaica

The rules that were agreed on then are still in place today

Under the Jamaican agreement :

 floating rates were declared acceptable
 gold was abandoned as a reserve asset
 total annual IMF quotas -the amount member countries contribute to
the IMF -were increased to US$41 billion today they are about US$1
Trillion
 EXCHANGE RATE
An exchange rate regime is a way a monetary authority of a
country or currency union manages the currency about other
currencies and the foreign exchange market. It is closely
related to monetary policy and the two are generally
dependent on many of the same factors, such as economic
scale and openness, inflation rate, the elasticity of the labor
market, financial market development, capital mobility, etc.
Fixed vs the floating

fixed floating
Fixed exchange rates are floating exchange rates
decided by central banks of are decided by the
a country mechanism of market
demand and supply.
 Fixed exchange rate
A fixed exchange rate is a regime applied by a government or central
bank that ties the country’s official currency exchange rate to
another country’s currency or the price of gold. The purpose of a
fixed exchange rate system is to keep a currency’s value within a
narrow band.

Fixed rates provide greater certainty for exporters and importers fixed
rates also help the government maintain low inflation, which, in
the long run, keep interest rates down and stimulates trade and
investment.
 Floating exchange rate
Floating exchange rates work through an open market system in which the price is
driven by speculation and the forces of supply and demand. Under this system,
increased supply but lower demand means that the price of a currency pair will
fall; while increased demand and lower supply means that the price will rise.

Floating currencies are perceived as strong or weak depending on the market

sentiment towards their country’s economy. For example, if a government is
viewed as unstable, the currency is likely to depreciate as faith in their ability to
regulate the economy declines.

However, governments can intervene in a floating exchange rate to keep their

currency’s price at a favourable level for international trade – this also helps to
avoid manipulation by other governments.
but as usual, between these two extreme positions there exits
also an intermediate range of different systems with limited
flexibility usually referred to as "soft pegs"
Intermediate regimes (soft pegs)
Conventional fixed peg
Crawling peg
regime:
only a few countries have adopted
Morocco’s current exchange crawling pegs.
rate regime 

dollarization
Panama has used the dollar as its TARGET ZONE
official currency since 1907
Ecuador replaced its domestic
ARRANGEMENT
currency with the use dollar in European Monetary System
september, 2000
Conventional fixed peg regime: a currency is pegged at a fixed rate to a major
currency or a basket of currencies, allowing the exchange rate to fluctuate within a
narrow margin of ± 1 percent around a formal central rate The monetary authority
intervenes in the market, if the fluctuation is outside these limits (Morocco pegs its
currency within margins of ±5 percent or less vis-à-vis a basket of currencies: The
dirham's exchange rate is currently fixed via a peg that is 60 percent weighted to
the euro and 40 percent to the dollar.)

Crawling peg is an exchange rate regime that allows depreciation or

appreciation to happen gradually. It is usually seen as a part of a fixed
exchange rate regime. The system is a method to fully use the key attributes of
the fixed exchange regimes as well as the flexibility of the floating exchange
rate regime.
 Target zone arrangement: In this system, a cluster of nations with common
goals and interests agree to either maintain exchange rates within a specified band
or to replace their domestic currency with a common currency. An example of this
system is European Monetary System which was introduced in 1979.

Dollarization : is the term for when the U.S. dollar is used in addition to or

instead of the domestic currency of another country. It is an example of currency
substitution. Dollarization usually happens when a country's own currency loses
its usefulness as a medium of exchange, due to hyperinflation or instability.
What’s next: there are several ways in which the future monetary
system could evolve:

 continue like it is right now (USD as the key international

currency for reserves and trade, major currencies floating
against each other and other heterogeneous systems
elsewhere on the periphery)
 Several key currencies heading ‘poles’ or ‘zones’. Within these
zones, the members have fixed exchange rates or common
currency (foe e.g. euro for Europe, maybe RMB for Asia) and then
floating exchange rates among the zones

 The acceptance of the SDR as an international currency

(will take a long time)
 the Asian Currency Unit (ACU)
The goal of the ACU is to promote greater free trade and financial flows among Asian
countries and loosen the region's dependence on the U.S. dollar. The 
Asian Development Bank (ADB) is responsible for exploring the feasibility and
construction of the currency basket along with Japan's Research Institute on
Economy, Trade, and Industry (RIETI).

The ACU is a proposed currency basket for the currencies of Asian countries that would
include China, Japan, South Korea, Indonesia, Malaysia, and Singapore. In particular,
it would serve as a common currency basket composed of 13 East Asian currencies,
such as ASEAN 10 plus Japan, China, and South Korea.
 Special Drawing Rights (SDR)

The SDR was created as a supplementary international reserve asset in the

context of the Bretton Woods fixed exchange rate system. The collapse of the
Bretton Woods system in 1973 and the shift of major currencies to floating
exchange rate regimes lessened the reliance on the SDR as a global reserve
asset. Nonetheless, SDR allocations can play a role in providing liquidity and
supplementing member countries’ official reserves, as was the case amid the
global financial crisis.
Evolution of money

Digital currency Virtual currency

A form of currency that is available A type of digital currency representing the
only in digital or electronic form. It value in a digital format, and it is active in
is also called digital money, the virtual community. In most countries,
electronic money, electronic people can use VC as a medium of
currency. exchange, but it does not enjoy a legal
tender status.
 Stablecoins
Stablecoins are a type of cryptocurrency
designed to maintain a stable price over time,
pegged to the value of an underlying asset,
like the U.S. dollar. They aim to offer all the
benefits of crypto while attempting to avoid
rampant volatility.
Central Bank Digital Currency
Thank You For Your Attention