Subject 3:

MONETARY SYSTEM

CIOBU Stela
Assoc. Prof., Ph.D.
 Content of the subject

 National monetary system.

 International monetary system
 European monetary system
1. National monetary
systems
 Monetary system -notion
Monetary system is a system by which
a government provides money in a country's
economy.

Modern monetary systems usually consist of the

national treasury, the mint, the central
banks and commercial banks.
History of monetary system
THE FIRST MONETARY SYSTEM
In the sec. VI BC according to the writings of
Herodotus, in Lydia, a country in Asia Minor, King
Cresus (560-547) established the first national
monetary system: he established monetary units and
subunits, fixed for each the content of noble metals,
determined the ratio between gold and silver. ,
centrally issued the currency, decides on the rules of
issuance and circulation of money.
 Conditions for establishment of
the monetary systems
The contemporary evolution of the national
monetary systems is marked by the processes of:
 internationalization of the monetary relations,
 the tendency to adhere to the regional monetary
systems,
 the appearance of the new forms of money,
 the fundamental change of the value content of
the currency.
 National monetary system
National monetary system must include all its
constituent elements:
 the monetary instrument;
 the regulatory framework;
 institutional structure.
The national monetary system represents the
functional organization of monetary instruments
under legal regulations and under the supervision of
the public monetary authority.
 MEASURES AND ACTIVITIES OF
NATIONAL MONETARY SYSTEM
 The choice of the currency that fulfills the function of
measuring the value, of standard, of general equivalent, by
which the national currency is defined;
 establishing the monetary unit, which, under certain name,
serves as a standard of value;
 choosing the effective circulation and payment instruments
(main currencies, divisional money, banknotes, etc.);
 regulation of the printing of denominations and issuing of
metallic division coins;
 regulating the issuance and circulation of banknotes and
other signs of value, as well as non-cash settlements;
 organizing the institutional apparatus that supervises and
supports the application of the monetary system; establishing
relations with other monetary systems.
Instruments of monetary system

 Monetary Instruments (1)

 Monetary Institutions (2)
 Money Regulations (3)
 Monetary Instruments (1)
 Monetary unit
 Monetary standard
 Broad money
 Mechanism of money issuing
 Regulation and issuing of monetary circulation
 Mechanism of exchange rate
 Mechanism of cash discipline for economic agents
 MONETARY UNIT
 The monetary unit is the central element of the
monetary system and serves as a standard for
measuring value.
 In most countries the names of the national monetary
unit have formed historically.
 The names of the monetary units have different
sources: - the name of the metal from which the coin
was made - aureus, serebrenic, etc .; - the name of the
unit of weight of the coin - drachma, pound sterling,
pound, etc .; - the tradition established in the current
speech: leu, leva, leka; - the name of the currency of
another country - the dollar is the name of the
national currency in 39 countries; - a convention -
SDR, EURO, etc. or others.
 MONETARY STANDARD
 The monetary standard is the value contained in a
monetary unit or the matter adopted as the basis of
the monetary system, which defines the monetary unit
and other types of currency.
 In the historical evolution, the value of the monetary
unit was qualified by: - the commodity standard, - the
metallic standard, - the foreign exchange standard
(currency, currency basket), - the purchasing power
standard.
 Broad money
 Money is the term (and indicator) that identifies the total
amount of money, regardless of the form it takes, and other
assets that can be used for money.
 The money supply is both an object of monetary
management and a tool of macroeconomic management.
 Increased significance for the normal functioning of the
monetary system has a component of the money supply
called cash.
 It includes all monetary signs issued by the monetary
authority in the form of banknotes, treasury notes,
divisional currency of different denominations. It is
important that the broad money of real money meets the
needs of monetary circulation both in quantity and
structure.
 MONETARY ISSUE MECHANISM
 Monetary issuing has now become a complex concern,
on the one hand the circulation of cash and on the
other hand the control over money supply (bank
deposits and loans, monetary policy instruments and
the money market).
 the objectives being to ensure the normal functioning
of the cash and non-cash payment system, the stability
of the purchasing power of the currency, and the
maintenance of the appropriate exchange rate.
 MONETARY CIRCULATION
MANAGEMENT
 The monetary system has the mission to serve the
normal functioning of the economy, which requires
ensuring the validity of monetary circulation.
 This is done through a complex of activities organized
and carried out by the public monetary authority
within the limits of its competences, namely: -
analysis, - forecasting, - regulation, - supervision.
THE MECHANISM OF ECHANGE RATE
 In monetary practice there are several ways of establishing the
exchange rate, the most representative being - fixing the exchange
rate and quoting.
 The fixing of the exchange rate means the arbitrary determination
by the monetary authority of the ratio between its own currency
and other currencies.
 Quotation is the act of setting the exchange rate of one currency
against another on the stock exchange.
 There are two methods of quoting currencies: direct and indirect.
 Direct quotation, practiced in most countries of the world,
including the Republic of Moldova, is the situation when the
foreign currency unit remains constant and the national currency
unit varies. For example: 1 USD = 12.45 MDL.
 Indirect quotation indicates how many foreign currency units make
up a national currency unit. It is used only in a few countries:
England, Australia, Ireland, New Zealand. The euro is set in the
same way. For example: 1EURO = 1.37 USD or 1GBP = 1.61USD, etc.
The exchange rate established following the daily quotation is called
floating.
MECHANISM OF THE CASH DISCIPLINE
OF THE ECONOMIC SUBJECTS
 The normal functioning of the monetary system in the
current conditions is possible thanks to the observance
of the rules regarding the keeping of cash in the
houses of economic subjects, including commercial
banks, in the forms of documents economic units,
under the responsibility of responsible persons, etc.
 In this regard, the Central Monetary Authority shall
put in place a set of instruments and rules designed to
ensure the regulatory behavior of all currency
operators and payment instruments.
 Monetary intuitions (2)
 Lawmaker
 Issuer
 Organizer
 Regulator
 Supervisor
 Monetary Regulation (3)
 Constitution
 Codes
 Laws
 Decisions
 Regulations
MONETARY SYSTEM OF MOLDOVA
 The circumstances necessary for the establishment of
the national monetary system emerged after Moldova's
independence on August 27.
 On December 15, 1992, the Law on Money No. 1232 -
XII was adopted. This Law established the national
monetary unit of the Republic of Moldova - the
Moldovan leu, and the divisional unit of money.
 A Moldovan leu is equal to 100 bani.
 The leu was put into circulation on November 29.
 On this day the exchange rate was set at 3.8 lei for
 Cash in circulation (Soviet money and coupons) and
money in accounts were exchanged for one leu.
 MOLDOVAN LEU
 (May 1994 issue)
 Features: Dimensions: 58 x 114 mm;
 Dominant colors, double-sided: yellow, green, brown
and ocher;
 Printed on special paper, the mass of which includes a
watermark reproducing the portrait of Stefan cel Mare
and a fully embedded metallic vertical safety wire.
REGULATORY FRAMEWORK OF THE
MONETARY SYSTEM OF MOLDOVA
 The Constitution of the Republic of Moldova in art. 130
stipulates: ...
 (2) The national currency of the Republic of Moldova
is the Moldovan leu.
 (3) The exclusive right to issue money belongs to the
National Bank of the Republic of Moldova. The issue is
made according to the decision of the Parliament.
 Law on the National Bank of Moldova devotes a special
chapter to the currency - Chapter VIII Currency
INSTITUTIONAL STRUCTURE OF THE
NATIONAL MONETARY SYSTEM
 National Bank of Moldova, being the public monetary authority,
has the central role in organizing the monetary circulation. The
National Bank, through its regulations, establishes the face value,
dimensions, weight, design and other characteristics of banknotes
and coins that are a means of payment in the Republic of Moldova.
The National Bank organizes the printing of banknotes and the
minting of coins and takes measures to keep those not issued in
circulation safe. The National Bank has the exclusive right to issue in
circulation banknotes and coins as a legal means of payment on the
territory of the Republic of Moldova.

 Commercial banks are the support of the National Bank in

organizing the functioning of the national monetary system.
Through them, the issuance of cash in circulation, the withdrawal of
damaged denominations and coins, the exchange of monetary signs,
the organization of monetary records and statistics (16) take place.
2. International
monetary system
 Paris Conference(1867)
 it was introduced the gold standard
 it was introduced the gold parity
 it was established the fixed exchange rates, established
by Law in the Parliament
 it was established that GBP is recognized as an
international currency
 the bill of exchange was recognized as an official
payment instrument
 Genoa Conference (1922)
 it was kept the gold standard
 it was kept the gold parity
 it was established the floating exchange rates
 it was kept GBP as an international currency
 it was introduced the obligation for all the countries to
elaborate the monetary policy
 It was introduced the currency regime
Bretton-Woods Conference (1944)
 it was kept the gold standard
 it was kept the gold parity
 it was established the fixed exchange rates and the
“currency snake” +/-1%
 it was established that USD is recognized as an
international currency and the commercial and
financial transitions should be performed in USD
 it was established IMF and World Bank
 it was established the Special Drawing Rights
 Jamaica Conference (1974)
 it was abolished the gold standard
 it was abolished the gold parity
 it was established the exchange rates
 it was established the floating exchange rates
 it was established the international gold market
 it was introduced the Special Drawing Rights
 the USD was kept as international currency
 all the countries have been obliged to elaborate the
monetary policies
 IMF
 The International Monetary Fund was created on
December 27, 1945, coming into effect on March

IMF goals:
 promote international monetary cooperation;
 oversees member countries' foreign exchange policies;
 draws up documents containing the guiding principles
of foreign exchange policy;
 make funds available to Member States in the form of
loans;
 contributes to the establishment of a multilateral
payment system between member countries.
 IMF objectives
 promoting monetary and international cooperation
through a specialized institution, enabling permanent
consultations between member countries;
 facilitating the balanced conduct of international
trade, which contributes to the efficient use of
Member States' resources;
 avoiding the manipulation of exchange rates for
incorrect purposes;
 elimination of currency restrictions that hinder the
development of international trade.
 World Bank structure
 International Bank for Reconstruction and
Development 1956
 International Finance Corporation 1960
 International Development Association 1988
 Multilateral Investment Guarantee Agency
 World Bank objectives
 Promoting economic development and reforms in
developing countries;
 Providing long-term loans to finance investment
projects and development programs.
 These loans are directed to the fields of infrastructure:
roads, railways, telecommunications systems, energy.
 Special Drawing Rights
 The factors that determined the emergence of international
monetary units of account need to increase international
liquidity;
 the creation of an international currency that does not belong to
any state;
 finding a stable monetary instrument in the conditions of the
unstable evolution of the convertible exchange rates.
 issuance and record of SDR volume of international trade;
 foreign exchange reserves of states;
 international liquidity;
 balance of payments status;
 the records and movement from one country to another or from
the IMF are made through the computerized system of the IMF
SDR Department, where all funds expressed in SDRs are stored.
 SDR (XDR)
 Evaluation of DST
 1970–1974 - gold
 1974–1980 - basket - 16 currencies;
 1981–1999 - currency basket - 5 currencies;
 1999 - 2016 - currency basket - 4 currencies (USD, EUR, JPY,
GBP). \
 2016 – present - currency basket - 5 currencies (USD, EUR, JPY,
GBP, Chinese Yuan).
 XDR basket has consisted of the following five currencies:

 U.S. dollar 41.73%,

 Euro 30.93%,
 Renminbi (Chinese yuan) 10.92%,
 Japanese yen 8.33%,
 British pound 8.09%.
 Key aspects
 Special drawing rights, or SDR, are an artificial
currency instrument created by the International
Monetary Fund, which uses them for internal
accounting purposes.
 The value of the SDR is calculated from a weighted
basket of major currencies, including the U.S. dollar,
the euro, Japanese yen, Chinese yuan, and British
pound.
 The SDR interest rate (SDRi) provides the basis for
calculating the interest rate charged to member
countries when they borrow from the IMF and paid to
members for their remunerated creditor positions in
the IMF.
 Functions of SDR
 the value of a currency can be defined in DST;
 reserve means – enter in the structure of international
liquidity;
 means of payment - used to purchase other currencies
between central banks.
 increase official foreign exchange reserve of the countries;
 to procure against SDR convertible currency from other IMF
member countries indicated by it;
 to obtain directly convertible currencies against SDRs from a
member country without IMF;
 to pay interest and commissions;
 limits on the use of SDRs to IMF and central banks of
member countries;
 individuals do not have access to SDR.
3. European monetary
system
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