The International Monetary

System

RENNY MIRYANTI
INTERNATIONAL RELATIONS DEPARTMENT
UNIVERSITAS JENDERAL SOEDIRMAN
The International Monetary System
Source: Mohtar Mas’oed, IPE Perspective in IR
Definition

The international monetary system is the structure

of the relationships that determine how international
payments are made and how international debts are
resolved, or a set of rules/practices that regulate
how debt among involved countries being
recognized and paid. The financial structure
consists of a set of monetary or financial relations
that embodies state and market activities
◦ Foreign exchange and currency exchange rates
◦ The system that regulates relations among countries
Value and Purchasing Power of
Currency
“Strong” currency (hard currency)
◦ Published by a big country with a strong and reliable
economic system, and also predictable behavior
◦ Stable domestic politics and international relations
◦ We can exchange these strong currencies with various
"local" currencies of countries in the world
◦ Examples of strong currencies: US Dollar, Euro,
Pound Sterling, Yen
“Weak” currency (soft currency)
Not widely used by other countries,
generally only valid in their own country
because the value is uncertain
Transaction volume does not support
international trade networks; the economy
is too small to support activity on world
markets.
Unstable domestic and foreign politics
3 Types of Exchange Rate System

1. Fixed exchange rate system (fixed or “pegged”

exchange rate), the exchange rate between currencies
is heavily influenced by government decisions
2. Floating exchange rate system (flexible or “floating”
exchange rate), the exchange rate is determined by the
foreign exchange market
3. Managed system (managed or “coordinated” exchange
rate), the country and market both determine the
exchange rate.
Fixed Exchange Rate : The Classic Gold Standard
System
Two of the most popular fixed value
systems:
1. The gold standard system in the late 19th
century
2. The Bretton Woods system based on the
gold-US dollar combination that prevailed
between 1943 and around 1973.
1. Gold Standard System

The United Kingdom as world monetary

hegemon, Bank of England as guarantor.
When the UK was no longer able to act as
a guarantor, the gold standard system
collapsed.
2. Bretton Woods System
 The Bretton Woods system was born in Bretton Woods,
New Hampshire, USA.
 The economic leaders of allied countries convened at
the Mount Washington Hotel, Bretton Woods discussed
about post-world war economic arrangements.
 The main agenda is to create a stable and flexible
international economic order, which can support
economic growth, and can avoid the narrow nationalism
that have led to two world wars in one generation.
 Each country sets its currency exchange rate based on
the value of gold. The US, for example, sets its dollar
value at $35 per ounce of gold
Managed exchange rate : State and Market
Combination
This managed exchange rate system tries
to take the good and put away the bad
from the actions of the state and market
and then combine them in a new system.
An example of this system is the
European Monetary System (EMS).
Question

Who get benefits from the current way of

organizing the world finance system?