SHANGHAI FINANCE UNIVERSITY
SCHOOL OF INTERNATIONAL ECONOMICS AND TRADE
DEPARTMENT OF INTERNATIONAL ECONOMICS AND TRADE
INTERNATIONAL MONETARY SYSTEM
The History of IMS and its Potential Reformulation
Introduction to IMS, Evolution of IMS, Beginning of Bretton Woods and Ending, Dirty floats, Current situation and Reformed Monetary system
WINNIE PAUL NDOSA (2011178102)
|The History of IMS and its Potential Reformulation |
| ...view middle of the document...
The second section is an analysis of the current monetary system. The world is facing two major issues right now, the potential collapse of the euro zone and the Chinese holding of US Treasury debt. In this section, I will explore these issues in depth and highlight how the history of the international monetary system has led us to this point.
In the third and final section, I highlight several possibilities for reform. This is not a comprehensive plan of action, but rather ideas of where I see reform is needed. Actual reform possibilities have been circulating for years, and these ideas represent a combination of these.
Evolution of the International Monetary System
The Classic Gold Standard (18761914)
The Rise of the Gold Standard in Great Britain
The classic gold standard started for most countries in and around the 1870s, but for Great Britain, it was far earlier. Many date the advent of the gold standard in Britain to 1717, when Sir Isaac Newton set the price of gold at too low a rate, causing silver to disappear from the country entirely. The actual date of demonetization didn’t occur until 1774, the year when gold was recoined, silver was recognized as subsidiary, and limits were set on the use of silver coins in excess of 25 pounds.
In the years leading up to the adoption of the gold standard by continental Europe, Britain faced several instances of convertibility issues. When the Reign of Terror took place in early 1793, there was a sharp outflow of capital in the form of both gold and silver from France. This produced large amounts of liquidity in Britain, fueling an ongoing mania to its peak. Eventually the assignat, the French paper currency of the time, collapsed, forcing a reflow of money. The British people panicked, and a bank run ensued. In response, the British government ordered the Bank of England to suspend convertibility, well before reserves ran out in an effort to keep gold reserves from becoming exhausted if all the increased notes to finance the war were cashed in. In 1825, not long after convertibility resumption, Britain once again faced the threat of a bank run. The Bank of France stepped in to aid them at this time, easing the fear of suspension.
Britain recognized the need to act. Suspension of the currency led to an inconsistent system...