International

Monetary
System
Group 8
Table of contents
Advantages &
01 Definition 02 disadvantages
Dicuss the advantages and disadvantages of
What is the International Monetary
three international monetary systems
System?

Role of gold and US Example of

03 dollar 04 Vietnam
Indicate the role of gold and
US dollar in the monetary systems
 01
Definition
What is the International
Monetary System?
“An international monetary system refers to
the rules, customs, instruments, facilities, and
organizations for affecting international
payments. International monetary systems can
be classified according to the way in which
exchange rates are determined or according to
the form that international reserve assets take”

International Economics Textbook 11th written by Dominick Salvatore

 Advantages &
disadvantages of
02 three international
monetary systems
Gold standard
(1880-1914)
The gold standard is a monetary system in
which the value of currency is based on a
fixed amount of gold.

Common in the 19th and 20th centuries

This facilitated international trade, exchange

of goods, and maintained the stability of
exchange rates amidst fluctuating currencies.
 Advantage Disadvantages
•
s
Limiting the power of governments or
banks to cause inflation by issuing
• Gold-scarce countries face constrained gold
supplies, which may hinder economic
excessive amounts of paper currency development

• The value of exported and imported • The gold standard may contribute to economic
goods is not affected by changes thanks recessions as it hinders a government's ability
to the fixed exchange rate to increase the money supply, a tool many
central banks use to stimulate growth

• Gold resources are limited, and the world's

gold reserves will eventually deplete
 Bretton Wood
System (1947-1971)
The Bretton Woods system was a gold-
exchange standard and in this system
each country constructs its exchange
rate policy based on the U.S. Dollar.
Countries will have foreign exchange
reserves in the form of the currency of a
single country.
 Advantage
•
s
By ensuring stability within financial
markets and exchange rates through the
establishment of an adjustment peg
regime among currencies, which
effectively mitigated volatility and risk in
international transactions
• Providing emergency relief and financial
support through international organizations
such as the IMF and the World Bank to
address economic and financial crises.
For instance, the financial assistance provided
by the IMF to the UK in the early 1970s.
Disadvantages
• Its vulnerability to external shocks and
imbalances
• Limited countries' ability to independently
adjust their monetary policies in response to
domestic economic conditions
• Reliance on the US to maintain a fixed gold
price became unsustainable as trade deficits
grew and gold reserves shrank
 These weaknesses led to the system's collapse
in the 1970s, with countries shifting towards
floating exchange rates.
 Jamaica System (1978 -
now)
In 1976, the Jamaica Agreement introduced a managed floating
exchange rate system, wherein currencies fluctuate in value relative to
one another, and governmental interventions occur solely to maintain
stability by targeting specific exchange rates.
 Advantage Disadvantages
• s
One of the primary advantages of Jamaica
international monetary system is its
• Heightened propensity for exchange rate
volatility in comparison to a fixed exchange
flexibility rate framework

• Another advantage of a managed floating • The inherent uncertainty surrounding the

system is that it allows countries to timing and magnitude of such interventions can
maintain competitiveness in international engender market speculation
markets.
• To maintain this system, the central bank must
also have a strong enough amount of foreign
currency to intervene
03 Role of gold
and US dollar in the
monetary system
 The role of gold in the monetary
system
Past 1970 Now
In the past, gold played a However, from the 1970s Gold continues to hold a
crucial role as currency and onward, the prevalence of the position in the current
the international reserve gold exchange standard began international monetary
standard. In this system, the to decline system
value of currencies was
directly linked to gold.
The role of gold in the monetary
system
•
One of its most crucial roles is as a store of
value

• Nations still utilize gold as part of their reserves

to safeguard the value of currencies and
diversify risk in asset management

• A hedge against inflation

• A tool for diversifying investment portfolios

Some statitics about gold reserve in the world
 The role of gold in the monetary
system
Gold remains perceived as a stable and secure asset in the global market. The buying and
selling of gold by central banks can still impact exchange rates and currency values

A linkage between gold and the monetary system

 The role of gold in the monetary
system
Gold prices are often viewed as an indicator of global economic and political conditions
This can prompt investors to reevaluate their investment strategies and allocate resources
into gold as a hedge against potential risks

=> The inverse correlation between gold prices and the strength of the US dollar is another example of
the complex interplay between gold and the broader monetary system.
The role of US dollar in the monetary
system

• Replaced the British pound sterling after

World War II

• Nowadays, a medium of exchange and

store of value for both domestic and
international transactions
 International
reserve
currency
Inside and outside the international financial
system, frequently store a sizable amount of
their foreign exchange reserves in US
dollars
The role of US dollar in the monetary
system

60% of foreign
exchange reserves
are still held in USD
by central banks
around the world

“Share of globally disclosed foreign exchange reserves”

Source: IMF COFER.
International payment system
• Reflects the depth of the capital market and the
strength of US economic institutions

• Long-term viability

• 70% of countries in the world set the value of their

local currencies in different ways, but are based on the
USD

• Global central banks favor the USD as their currency

of choice
 value
In commercial contracts and international goods and services transactions

“The Dollar Index increased about 3% from the beginning of 2023 until October 2023” Source: TradingView

Increased foreign commerce and

USD will continue its upward trend investment have caused a concentration in
some currencies
 Influence on other countries' monetary
policies
Other nations' financial and economic circumstances can be impacted by changes
in the value of the US dollar
04 Example of Vietnam
— Vietnam's example of the role of gold in
monetary system
— Vietnam's example of the role of US
dollar in monetary system
01 Vietnam's example of the role of gold in monetary
systems
In Vietnam, gold circulates in a diverse
range of types and designs, but the domestic
gold market heavily relies on imported gold,
both in terms of volume and price.

Gold does not significantly impact the

target of controlling the money supply and
stabilizing the economy, even though a portion
of the population still uses gold as a means of
payment for real estate transactions, stores
gold.
 Vietnam's gold
consumption surged in
2022, reaching 59.1 tons
for the year

According to the World

Gold Council, Vietnam's
gold consumption growth
in 2022 surpassed that of
other Southeast Asian
nations, excluding China,
acknowledging Vietnam's
leading position in driving
regional gold demand

— Source: Mekong ASEAN, 2022

 The steady
accumulation of
gold reserves
suggest that
Vietnam views gold
as a reliable store
of value and a
hedge against
inflation and
currency
fluctuations

— Source: Mekong ASEAN, 2022

Vietnam’s Gold Reserves from
2014 to October 2023
02 Vietnam's example of the role of the US dollar in
monetary systems
In international trade, the USD is often as
an international payment currency in
commercial transactions

US USD is a significant component of foreign

D exchange reserves

The US dollar's presence is deeply

intertwined with Vietnam's economic
stability and growth prospects
RISKS AND
CHALLENG
ES Exchange rate risks, limitations on the
ability to conduct independent monetary policies,
dependence on US economic policies, capital
flight risks, opportunity costs from maintaining
large foreign exchange reserves, and impacts on
businesses due to exchange rate fluctuations.
 The dollarization rate in
Vietnam has typically been higher
than 20% before the year 2010.
However, after 2010, it has been
higher than 10%.

To avoid an imbalance between

the USD and VND, macroeconomic
stability policies, interest rates, and
exchange rates are implemented to
maintain the attractiveness of the VND
compared to the USD.
 Thanks
for
listening