Strengthening the International Monetary System

Abstract

The term “International Monetary System” (IMS) refers to the rules and institutions that organize and regulate international payments and foreign exchange systems. Specifically, these include the currency/monetary regimes of countries, the rules for exchange rate intervention, and the institutions that back those rules. Historically, there have been various systems, including several forms of the gold standard and the floating currency system. The Bretton Woods arrangements of a fixed but adjustable foreign exchange system overseen by the International Monetary Fund (IMF) were introduced after World War II. The abandonment of the gold standard in 1971 paved the way to a less regulated system comprising floating exchange and fixed but adjustable rates. A key notion in this setup is that of reserve asset: so long as a country fixes or manages its exchange rate, it needs a liquid international asset of stable value. Since the demise of gold as monetary anchor, the US dollar has been the world’s principal reserve asset.