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.