The fundamentals of Monetary System across the Globe.

1. International Monetary
System
By:
Himanshu Sood
Assistant Professor
PCTE Group of Institutes, Ludhiana

2. The Gold Standard – A brief history
• Gold being: Store Value, Exchange Value and Measure Value.
• Flourishing prices since 1200 to present.
• Coins till 1875.
• Drawbacks of Gold Trade:
- Transportation and storage cost.
- No interest earned on storage.
- Target of Pirates and thieves.
• Shift to paper currency and to be exchanged with gold at fixed rates.
• 1 Ounce of Gold = Pounds 3, Shillings 17 and Pence 10.5
• Pegging of currencies on gold. Example:
- 1 Ounce = GBP 5
- 1 Ounce = Francs 10
- 1 GBP = 2 Francs or 1 Francs = 0.5 GBP
- Trade Imbalance compensated by flow of gold

3. The Gold Standard – A brief history
• World War-I forced Britain to sell gold for Pounds.
• Germany, France and Russia suspended paper money for gold and stopped
exporting gold for imports.
• Gold standard unsuccessfully established between WW-I and WW-II.
• Iran started huge preservation of gold in respect to oil and this overvalued
the gold price in international markets.
• Great Depression in 1929 and Germany purchased USDs and became the
trading currency for 5 -6 years.
• Bretton Woods Conference and IMF for regulation of money supply and
fixed exchange standard i.e. Gold and USD.
• 1 Ounce Gold = USD 35.00
1 GBP = USD 2.40
1 French Franc = USD 0.18

4. Emergence of Floating Currency
Exchange Rate System
• Announced by President Nixon in 1971.
• In 1971, Nixon devalued USD to jerk its
exports.
• USD started trading in open markets.
• Till 1973, other major currencies also started
floating.
• Government mandated pegging on currency
fluctuation to get its control. 5% above and
below.

5. Fixed Exchange Rate Regime
• To determine the currency’s value as per other
currency or gold.
• Floating Exchange Rate: Relative to Supply
and Demand of a currency.
• Central bank intervene in buying and selling
the currency to put regulation.

6. Thank You