2. EVOLUTION OF IMS
• Defines : The overall financial environment in which multinational corporations operate.
Several stages of evolution
1. Bimetallism : Before 1875 (Both gold and silver standard) China , India, Germany and Japan
2. Classical gold standard : 1875 – 1914 ( Great Britain) World War I
3. Interwar Period : 1915 – 1944 ( United states replaced Great Britain as financial superpower)
Sterilization of Gold
4. Bretton woods system : 1945 – 1972 ( 44 Nations) Formed IMF, IBRD(WB) International
clearing union called ‘ bancor” ( International Reserve asset)
5. Flexible exchange rate regime : Since 1973 ( Government interventions) (1985 G5 countries)
3. INTERNATIONAL MONETARY FUND
• Competitive depreciation of currencies along with the failure of gold standard created
a need for economic co-operation among the nations. Each country was devaluing its
currency as to have a competitive edge over exports.
Main Objective :
1. To promote international monetary cooperation through a permanent institution
2. Aimed balanced growth of the international trade for the promotion and
maintenance of high levels of employment and development of productive
resources.
3. Stable exchange rate and removal of competitive depreciation of currencies.
4. SDRs
4. CLASSICAL GOLD STANDARD
Types of Gold standard
1. Gold currency standard
2. Gold Bullion standard
3. Gold exchange standard
5. GOLD CURRENCY STANDARD
• Standard currency unit of country – gold coin – full legal tender
Paper currency and other metallic coins of silver, copper or nickel may circulate
freely along with gold coins
The market value of gold coin = metallic value
Free flow of gold between countries
6. GOLD BULLION STANDARD
• Gold standard to definite quantity of gold
• All currency notes and coins redeemable at par in gold bullion
• Gold not in coins but as bars
• Gold bars bought and sold by the treasury or central bank in fixed quantities and
fixed prices
• Gold freely imported and exported
7. GOLD EXCHANGE STANDARD
• A country used to be on gold exchange standard if tis currency was convertible to
another country’s currency unit which in turn was on gold coin or bullion
standard.
• India was on gold exchange standard after 1900, the rupee was convertible not
directly to gold but to English pound-sterling
