The document summarizes the history of the international monetary system, from the gold standard to the emergence of floating exchange rates. It discusses how the gold standard worked, with currencies pegged to gold at fixed rates and trade imbalances compensated by gold flows. It then explains how World War I disrupted this system and how the Bretton Woods system after World War II pegged currencies to the US dollar instead of gold. Finally, it describes how President Nixon ended the peg to the US dollar in 1971, causing other major currencies to float freely as well and establishing the current system of floating exchange rates.

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