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Chapter 8

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Political Science
Robert O' Brien

Chapter 8 Global Financial SystemInternational Monetary System IMSHow one currency is exchanged with another undergone transformation1 changed from fixed to floating rates2 growth of regional currencies replacing some national currenciesIn the provisioning of credit governments are replaced by the private corporationsIMS is necessary for stable economic system Return to Gold System proved impossible between the World Wars Floating exchange rates also caused competitive devaluation since in the post War period the US interests dominated the system the solution was to balance the floating and fixed exchange rates system as per US interestsGold Exchange SystemThe US emerged as a creditor country after WW 2 Gold was fixed to gold for 35 dollars per ounce The exchange rates are allowed to float in relation to the US dollars in contrast to the gold standard other currencies were not fixed to goldthey were fixed to the US dollar Governments retain capacity to devalue their currency in relation to the US dollars the system relied on people having faith that the US currency would be exchange for gold at the fixed rate if there was a demand to do so T
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