The international monetary system consists of rules and institutions that govern foreign exchange rates, trade, and capital flows between countries. It has evolved over four stages: the gold standard (1875-1914), the interwar period (1915-1944), the Bretton Woods system (1945-1972), and the floating exchange rate regime since 1973. Under the Bretton Woods system, currencies were pegged to the US dollar, which was convertible to gold, establishing a fixed exchange rate system. However, the system collapsed in 1971 when the US suspended gold convertibility, leading to the current floating rate regime.

1. SUBMITED BY
D.TULASI

2. INTERNATIONAL MONETARY SYSTEM
International monetary system consists of elements
such as laws, rules, agreements, institutions, mechanisms and
procedures which affect foreign exchange rates, balance of
payments adjustments, international trade and capital flows.
It plays a crucial role in the financial management of a
multinational business and economic and financial policies of
each country.

3. Evolution of international monetary system can be analyzed in
four stages as follows:
• Gold Standard (1875-1914)
• Interwar Period (1915-1944)
• Bretton Woods System (1945-1972)
• Exchange rate regime since 1973

4. GOLD STANDARD (1875-1914)
In gold standard, currency is pegged to a specific value of gold with
100% gold backing and with restrictions free flow of gold.
The essential conditions for maintaining the gold standard are
 The value of the flat currency is fixed by reference to a certain
weight of gold.
 The currency is easily convertible into gold.
 The international community have complete confidence in the
integrity of the institution issuing the flat currency and
 Gold can be freely exported and imported.

5. INTER WAR PERIOD (1915-1944)
The gold standard was suspended during world war I but in 1925 the
united kingdom reintroduced convertibility in an attempt to stabilize
world trade. The attempt was unsuccessful.
The united states adopted the modified gold standard in 1935. This
system differs from the pure gold standard run by the Bank of England in
that
 The US treasury would buy and sell gold for foreign currency only to
another government agency and
 The export and import of gold was prohibited.
However the price of gold was fixed at $35 an ounce, and the US
government guaranteed that it would control the price at this level.

6. BRETTON WOODS SYSTEM (1945-1972)
The reconstruction of post-war financial system began with the Bretton
Woods agreement that emerged from the international monetary and
financial conference of the united and associated nations in July 1944
at BrettonWoods, New Hampshire.
The international monetary system , that evolved a novel exchange rate
system established in 1945
 Fixed parity system linked the value of currencies with a fixed
amount of gold/US dollar. Adjustable peg value means
devaluation/upward revaluation of a currency.
 US dollar was an intervention currency as it was directly
convertible into gold. Other currencies were convertible into gold
through US dollar.

7. The international monetary system (IMF) since 1971
The system of Bretton Woods worked satisfactorily for many years
but difficulties started as
 The trade balance of the USA became highly negative
 A very large amount of US dollars was held outside the USA
Anticipating a devaluation of the US dollar, speculators bought gold
while other governments demanded conversion of US dollars into
gold.
On 15th august 1971, president Nixon of the USA suspended the
system of convertibility of the dollar into gold thus dealing a serious
blow to the fixed parity system.

8. EXCHANGE RATE REGIME SINCE 1973
In view of the collapse of the Bretton Woods system of
exchange rate, the board of governors of the IMF appointed
committee of 20 to suggest guidelines for evolving an exchange
rate system that could acceptable to the member countries.
The board options under the new exchange rate regime were:
 Floating –independent and managed
 Pegging of currency
 Target – zone agreement