INTERNATIONAL MONETARY SYSTEM: DESCRIPTION, ASSESSMENT, AND PREDICTIONS
This research presents a review of the development and description of the current international monetary system (IMS). Reviewed also is the current status of the IMS, trends in the IMS, and predictions for the future of the IMS.
Development and Description of the IMS
The main elements of the international monetary system are the currency exchange rate mechanism and the function of reserve currency preferences. Of the two, the currency exchange rate mechanism is somewhat more important (Leckow, 1999).
The industrial countries have employed two general types of international monetary rate change systems since the end of the Second World War · fixed-rate systems and flexible-rate systems. A fixed-rate exchange system is one in which different countries have agreed upon the rates at which their various currencies will be exchanged in international trading, or one in which one country has a fixed-exchange rate for its own currency which it is prepared to defend. Each of these situations existed among the western industrial countries before the introduction of the flexible-rate exchange system, also referred to as a floating-exchange rate system (Little & Olivei, 1999).
A floating-exchange rate system permits each currency to find its own level of exchange, which will change from time-to-time, as economic conditions change. It is important to note, however, that most countries, in some situations, restrict the movement of their currencies even under a flexible-exchange rate system. Both individually and as a group, the major western financial countries have intervened in the international currency exchange markets on numerous occasions since the introduction of the floating-exchange rate system, as a means of influencing the rate for one or more currencies (Little & Olivei, 1999).
The longer-term impact of an unrestricted floating-exchange rate s...