International Monetary System

5868 words 24 pages


International Monetary System refers to the system prevailing in world foreign exchange markets through which international trade & capital movements are financed & exchanges rates are determined.

MNCs operate in a global market, buying/selling/producing in many different countries. For example, GM sells cars in 150 countries, produces cars in 50 countries, so it has to deal with hundreds of currencies. What are the mechanics of how currency and capital flows internationally?

International Monetary System - Institutional framework within which:
1. International payments are made
2. Movements of capital are accommodated
3. Ex-rates are determined

An international
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Gold Specie Standard

A gold specie standard existed in some of the great empires of earlier times. One example is the Byzantine Empire, which used a gold coin known as the Byzant. But with the ending of the Byzantine Empire, the European world tended to use the silver standard. An example is the silver pennies that became the staple coin of Britain around the time of King Offa in the year 796 AD. The Spanish discovery of the great silver deposits at Potosí and in Mexico in the 16th century led to an international silver standard in conjunction with the famous pieces of eight, important until the nineteenth century.

In modern times the British West Indies was one of the first regions to adopt a gold specie standard. Following Queen Anne's proclamation of 1704, the British West Indies gold standard, was a 'de facto' gold standard based on the Spanish gold doubloon coin. In the year 1717, master of the Royal Mint Sir Isaac Newton established a new mint ratio between silver and gold that had the effect of driving silver out of circulation and putting Britain on a gold standard. However, only in 1821, following the introduction of the gold sovereign coin by the new Royal Mint at Tower Hill in the year 1816, was the United Kingdom formally put on a gold specie standard.

The United Kingdom was the first of the great industrial powers to switch from the silver standard to a gold


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