About International Monetary System

International monetary system is a set of policies, institutions, practitioners, regulation, mechanisms that determine the rate at which one currency in trade for other currencies. History of the International Monetary System Each state has its own currency, and it shows the value of the currency the goods. However, for international trade, the various currencies in the world should be changed from one currency to another currency. Changes in the monetary system caused by the economic turmoil. By studying the historical experience would be able to obtain an overview of economic instability and the emergence of international balance of payments adjustment process. International monetary and financial system plays a central role in the global political economy. Since the late 19th century, the early establishment of this system through various transformations in response to changing political and economic conditions both domestic and international level. The most dramatic change is a crisis in the international monetary integration and the international regime during the interwar years. The second transformation occurred after World War II when the Bretton Woods system was running. Because in the 1970s, a period of change under the Bretton Woods system there is a change of the gold exchange standard into U.S. dollars and a commitment to capital controls. Various changes have significant political consequences of who gets what, when, and how the global political economy. The evolution of the gold standard and the solution (1930) The concept of the gold standard is penguunaan gold currency as a medium of exchange, a unit of computation and as a means of storing hem. This activity has occurred since ancient times. But the growing phenomenon of trading volume increases with the rise of the industrial revolution encouraged a demand for tools that are easier to fund and support the international trade in order to present the gold standard set and push the government to agree to exchange their paper currency into gold with a fixed exchange rate . Since 1880 the UK, Germany, Japan and the U.S. have adopted this system of gold standard. With the enactment of the gold standard then the value of each currency in the currency of another can be easily determined so as to catalyze international trade. U.S. $ 1 initially rewarded with 23.22 grains of pure gold which 1 ounce of gold equal to 480 grains of gold. In other words the price of an ounce of gold is U.S. $ 20.67. A number of currency needed to buy an ounce of gold called the par value of gold.

The International Monetary Fund

The International Monetary Fund or the International Monetary Fund (IMF) is an international organization that is responsible in regulating the global financial system and provides loans to its member states to help balance the issues of financial balance of each country. One mission is to assist countries experiencing serious economic difficulties, and in return, the state is obliged to perform certain policies such as privatization of state owned enterprises. After a long consideration and careful, a monetary system agreed at Bretton Woods. Member countries agree to control the rate limit them in ways that have been determined. According to the initial agreement, the rates varied allowed up to one percent below or above par. When a country's exchange rate reached or approached one of the boundaries, so-called "supporters point arbitrage", the central bank intervened to prevent exchange rate market was over the limit. Inntervensi market requires a State to accumulate foreign exchange reserves, which consist of gold and foreign currencies, above the normal trading needs. An agency called the International Monetary Fund IMF, established in the Bretton Woods monetary system to oversee the newly agreed upon. There are some things that have achieved international monetary fund. For example, the agency: Managed to maintain a rapid increase of the volume of trade and investment. Show flexibility in adapting to changes in international trade. The more efficient (even a decline in the percentage of foreign reserves) The more powerful (the agency managed to get through the crisis early in 1971, addressing the speculative activity, and survive in a volatile business cycle). Support the growth of international cooperation. Build the capacity to accommodate the reform and improvement. 2.3 Determination System Currency Converter Exchange rate determination mechanism can be categorized into several groups: Free Float (Free Floating) Under this system, exchange rate allowed to float freely depending on market forces. Some factors that affect exchange rates, eg inflation, economic growth, inflation will be used by the market exchange rate in evaluating the relevant country. If the variable is changed, or appreciation of the variable is changed, foreign exchange rates will change. Free-floating system is also known as clean float.

How to Conduct International Transactions

Payment transactions in foreign economies, can be used several ways, including: Cash Payments made by using a check / check or bank draft, when goods are shipped by the exporter or earlier. This method is very good for the exporters that their financial situation is weak and not well acquainted with the importer. Open Account Is the opposite of the way of cash, the payment is made after some time or the wisdom of the importer after the goods are shipped to the importer without a warrant of payment and documents. Commercial Bill of Exchange Is the most commonly used and often referred to draft or trade bills, the letter written by the seller that contains the commands to the buyer to pay a certain amount of money at a certain time in the future, which is usually called the trade drafts. This type of draft; clean draft and documentary draft. Letter of Credit L / C is a letter issued by the bank at the request of the goods the buyer (importer) which is an approved bank and pay bills of exchange drawn by the seller (exporter). Thus the L / C is a tool and can substitute for bank credit to guarantee payment to the exporter. Parties involved in the L / C is the Opener (importer), issuer (the bank issuing the L / C), Beneficiary or the seller (exporter), and in practice there is another party that is Confirming Bank, the bank in the exporter country. private Compensation Is the completion of a compensation payment of debts without the transfer of currency to another country.

Weaknesses of the International Monetary System

When the international monetary system linked to gold, which eventually led to the interdependence between the system so that it becomes an anchor currency for a fixed exchange rate (fixed exchange rate) and stabilize inflation. When the Gold Standard system is destroyed, the value function does not last long and the world caught up in a regime of continuous inflation. The current international monetary system is not set interdepensi (interlocking) between the various currencies and also did not stabilize prices. Rather than relying on a balance that is generated automatically, the U.S. had to "slap" that threatens its trading partners like the enemy. After the revolution in Eastern Europe and the collapse of communism, we suddenly have 10 new countries into the international monetary system, (Soviet Union) entirely with a new currency or new needs of its currency policy. Monetary system as it is supposed to Michel Camdessus (Managing Director IMF at the time) recommend to the new countries? The answer will be revealed before the year 1971: each country must stabilize its currency against the U.S. dollar or against any one currency stable against the U.S. dollar associated with the gold. Fixing the exchange rate against the dollar bloc which includes almost the entire world economy, has given a new transition countries have a relatively stable price level in the western countries. Now I want to show the important contribution by the IMF at the beginning of its establishment in 1946 and 1971. In the early pendiriannyaIMF give states a macro-economic management philosophy is based on the logical exchange rate is fixed or controlled (fixed exchange rate). This incredible deal is now left to the domestic monetary leaders. To be sure, a country can fix its currency to one of the major currencies like U.S. Dollar. In practice, such a policy requires the action of strong leadership; stabilization plan (inflation) involves a fixed exchange rate that applied in Argentina by Domingo Cavallo illustrating how rare quality of a leader like him. In the period of fixed exchange rates before 1971, strong leadership is needed because there is a system where the majority of countries the IMF has a set of compliance and technical aspects to implement it. But after 1971 the IMF lost touch when switching from a fixed exchange rate (against gold) before 1971 to a floating exchange rate after 1971 and especially after 1973, the year when the international monetary system of fixed exchange rates cancel the switch to floating exchange rate. The IMF then shifted his duties as the center of the international monetary system into a new role as special consultant and supervisor of macroeconomic debt (even brokerage debt-pent), the actual function can be played well by private consultants. When the challenges of transition countries emerged, the IMF does not have an interlocking system for monetary stability to offer a good system and almost without exception of the concepts are often haphazard. Failure of the transition state as evidenced by the fact that none of these countries in late 1996, could exceed the level of income since the transition began, and with only one or two exceptions, inflation back to 2 digits. Improvement since the end of the cold war so far much worse than most of the improvement at the end of World War (I and II) are very devastating.

International monetary system is absolute in the world today does not exist. Each state has its own system. Most people do not understand how unusual (unusual) system. For thousands of years these countries have pegged their currencies to one of the precious metals (gold or silver) or against other currencies. But in the last quarter-century since the international monetary system (Bretton Woods) is destroyed, the countries adopted the monetary system itself, fen Omena which have no historical example of the cooperation between countries, known as the international monetary system. Economists know that the dependence between the international monetary system is supported by the fact that the balance of payments equilibrium (a state) are interconnected to each other. If one country has a surplus trade balance of the other countries have a trade balance deficit. So a country moving towards surplus or deficit that automatically affect the other country. It has an influence on the exchange rate system. In a world of n states with n currencies, there are n-1 independent exchange rates. Each state can not set the exchange rate. There will be a lot of fixed exchange rates between countries. There is one degree free (degree of freedom), which allowed an increase in what economists call a (redundancy problem) the problem of excess. Rule where the additional degree of freedom to maintain price stability, or in the case of the gold standard (gold standard) is to maintain or stabilize the price of gold. On paper, the collection of data on nearly 200 countries with a single currency and a floating exchange rate will show the result of tremendous confusion. In practice, however, this system is not so bad. There are important links in the world financial structure with respect to the configuration of power in the world economy and the specific rules that are run by the U.S. currency. When a country has supereconomy, its currency is often fulfill many functions of an international currency