Academic Master

Business and Finance

Explain in Detail the International Monetary System.

The “international monetary system” can be illustrated as a set of rules, supporting institutions, and conventions that are responsible for facilitating international trade, cross-border investment, and also the relocation of capital within the nation-states. The system is responsible for the provision of the means of payment that are acceptable to the buyers and sellers of different nations, as well as the methods of deferred payment (Ravenhill). Therefore, for proper operation, the system is required to motivate confidence, give sufficient liquidity needed for the fluctuating levels of trade, and offer the means needed for catering to global imbalance.

What was the gold standard? Why did it collapse?

The gold standard is referred to as the monetary system, where the standard required for the financial unit of an account is supported by a rigid quantity of gold. They are of three types, namely the bullion, specie, and the exchange. Before the First World War, the gold standard worked efficiently, and it was accepted worldwide. But later, it failed for the following reasons. They include violation of the rules of Gold standards, free trade restriction, unbalanced gold distribution, external indebtedness, excessive use of the gold exchange standards, lack of cooperation, and political instability.

What was Bretton Woods? When was it created? How many countries were involved? Where was it created? When did it collapse? What were the challenges Bretton Woods faced? Identify and explain in detail.

Bretton Woods is a system of financial management created with the standard rules for the financial and commercial relationship among five nations, including the United States of America, Canada, Western Europe, Japan, and Australia. It was established in 1944 after the Bretton Woods Agreement (Bordo and Barry). The system was created in Bretton Woods in the United States and later failed in 1971. The system failed due to a lack of enforcement of IMF’s regulatory structure and also overreliance on the American dollar, which was subjected to constraints like a constant gold exchange rate, hard cooperation of member nations, and difficulty for the state to compromise the welfare. The world economic growth, a shift in gold reserve holding, and the resulting issues with dollar confidentiality also resulted in the collapse of the Bretton Woods system.

Works Cited

Bordo, Michael D., and J. Eichengreen Barry. A Retrospective on the Bretton Woods system: lessons for international monetary reform. Chicago: University of Chicago, 1993.

Ravenhill, John. Global Political Economy. Oxford: Oxford University Press, 2005.

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