Anfernee Yu Jeco

FIN-023 BAFM41S1

Assignment 1.1 International Monetary System

Importance of the International Monetary System

International Monetary System is a set of internationally agreed rules, conventions, and

supporting institutions that facilitates the use and exchange of money around the world and
between countries. Each country has its own currency as money and the international
monetary system governs the rules for valuing and exchanging these currencies. Before the
current monetary system, there were systems that were used such as the classical gold
standard, systems from the interwar years, fixed exchange rates, floating exchange rates, and
now the emerging era in which it is depicted that a number of major emerging market
currencies are embracing with the Chinese renminbi. The changes of international monetary
system are influenced by the crisis that impacts it and fluctuations of currencies. Some experts
say that the current international monetary system is not the final system. Therefore, it
changes through time depending on the flow of the global economy and politics.

The importance of the international monetary system is that it facilitates the

international economic exchange of goods, services, and capital among countries since most
countries have currencies that are not typically accepted as legally payment beyond their
borders. When the international monetary system is operating efficiently, international trade
can flourish. However, when the system operates poorly or even completely fails, international
investment is throttled. The IMS seeks to contribute to a stable and high global growth while
currently encouraging price and financial stability. The IMS also regulates the balance of
payments in which it is an accounting device that records all international transactions between
a country and the rest of the world for a given period. It comprises of exchange rates,
international payments and transfers relating to current international transactions,
international capital movements, and international reserves.

In conclusion, the international monetary system is important because it governs the

exchange of currencies to every country around the world. IMS also continues to evolve and
each crisis impacts it. There is not likely that the current IMS will be the final international
monetary system, it changes through time by its economic and political realities. Who knows
that 10 years from now countries will implement a new international monetary system.
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