International monetary system

International monetary system (Your name) (Course instructor) (Course title) (Date of submission)  Introduction An international monetary system refers to internationally accepted conventions, regulations and supporting institutions in facilitating international trade and investments. It also includes the reallocation of resources among the states. International monetary system offers common payment means between the buyers and sellers of various nationalities. This also includes deferred payment system. This kind of systems is crucial in defining a regular standard of value for the global currencies (Wolf, 2009). According to Gorman, (2003), the international monetary systems do not harbor a physical presence similar to that of Federal Reserve System. It is also not similar to the social security systems that are codified. Rather, they constitute interlocking procedures and rules that are subject to foreign market exchange and hence, are left to the jurisdiction of currency traders. In this system are procedures, rules and policies, which public finance leaders from various states have establish and modify from time to time. In addition to these are physical institutions that are mandated to oversee these global monetary systems; the most spectacular of this is the International Monetary Fund. Evolution of International Monetary system The gold standard was among the first global monetary systems. This was operating since 19th and 20th centuries. The gold system offered free circulation between states in gold coins that were standardized. Under this method, gold was the only standard of value. The stabilizing influence that this system harbored was its greatest advantage. A state that imported more products in comparison to its imports would acquire gold as payment for the balance. The influx of gold however, lead to price increase and the devaluation of domestic currency. The increased prices subsequently led to the low demand for exports and a gold surplus in paying for low cost imports (Agmon, 1984) Lack of liquidity however posted as the main setback in this monetary system. The supply of money in international perspective would subsequently lead to limited supply of currencies. In addition, any uncommon increment in gold supply, for instance when a rich lode has been discovered, would lead to unexpected price increase. This is the reason as to why the gold standard as an international monetary system collapsed in 1914 (Agmon, 1984). Bretton Wood Exchange Rate Polices After the gold standard monetary systems collapsed, world representatives from 45 states met in New Hampshire to discuss among other themes, world trade and monetary issues. This resulted into agreements concerning the establishment of the World Bank, which was referred by then, the International Bank for Reconstruction and Development. T...