International Monetary System

silver into the economy as chinese products were more expensive in other places. Document 8

During his presidency, William McKinley had many domestic affairs to deal with. Amid the most significant issues, McKinley’s tariff legislation was a big one. Bimetallism was also an important issue. The McKinley administration went after an agreement that would include silver, as a standard European currency. McKinley didn’t like the idea so he began promoting a completely gold-based currency. In 1900, he signed the Gold Standard Act, which officially ended the use of silver as a standard of United States currency and established gold as the only standard. This still affects us today because although no country uses the gold standard, there is a rising support for its reintroduction in the hope of regulating U.S.

Documents 4, 7, and 8 describe how silver became the main method of exchange on the global

With the onset of the war, the stability of the relationship between Britain, France, and Germany – which the Gold Standard was dependent on – crippled (lecture, 10/13). During the interwar period, 1914-1945, the lack of coordination between economies led to a liquidity shortage while the nations held a floating exchange rate. The interwar period saw a breakdown in international monetary coordination – proving that a floating economy was doomed for failure (FLB 264). Outside of the lack of international coordination, the Gold Standard had other downfalls leading to its demise. For example, national governments had no authority to stimulate their country’s economies in times of need. Moreover, the fixed economy limits foreign trade, hurting the country’s industries (lecture,

Throughout American history, the United States Mint has coined several denominations that would now be considered “odd” or “strange” by the general public: half cent, two cent, three cent, half dime, twenty cent, quarter eagle, three dollar, half eagle, eagle, and double eagle. At the time, however, many of these were seen in everyday circulation, a completely normal denomination. Each of them had a purpose behind its inception and a practical use after mintage. For example, the two cent piece was coined during and after the American Civil War to address the shortage of small denomination coinage. The three cent piece was minted to make purchasing postage more convenient, which was priced at three cents at the time. One of these denominations stands out from the rest: the twenty cent piece. It holds the honor of being the shortest lived circulation denomination in United States history. This, however, should not come as a surprise; the denomination was doomed from the beginning.

Then in 1929. one of great disasters opposing the gold standard was the Great Depression.The world economy started to fail, causing Great Britain to abandon the Gold Bullion Standard in 1931. This event was used as evidence to say that the gold standard was advantageous in the long run, but under the stress short term shocks and depression, it was incompatible. The only way to get back on the gold standard was to first get off the gold standard, restabilize the economy, and then return to the gold standard. Such events that pointed to the inadequacies of the system was, in 1933 Franklin Roosevelt prohibits the public to hold gold in order to solve a national gold run. A run is when a large amount of people try to withdraw at the same time. When there isn’t

Ever since the Bretton Woods agreement in 1944, the U.S dollar became the world’s currency. Bretton Woods agreement was basically an agreement on which every country currency would be back up by the dollar, due to the fact that after WWII United States was the only one with the biggest gold reserve in the world. Although it was proposed as a good idea it had its flaws for one even though it help the U.S and other countries there was simply not enough gold to continue backing up the dollar value. Which lead to President Richard Nixon to abolish the gold standard economy. His abolish of a gold standard economy lead to a new proposal on which the dollar would be back by.

Executive Order 11110, issued by President Kennedy on June 4th of 1963 attempted to establish a silver backing system, though the Gold Standard was still in place however Kennedy was assassinated and the order was revoked.

This made the policy fine until WW 1 when the gold standard was torn up in 1914 because countries needed to print money to fight World War I. When World War I was over and the world entered the early 1920s, countries wanted to go back to the gold standard but they didn’t quite know how to do it. Before World War I started with parity, meaning there was a certain amount of gold and a certain amount of paper money backed by gold. Then, the paper money supply was doubled. That left only two choices if countries wanted to go back to a gold standard. They could’ve doubled the price of gold — basically cut the value of their currency in half or they could’ve cut the money supply in half. They could’ve done either one but they had to get to the parity

Because countries on gold standard had a common backing of currency, it was easy to exchange currencies without worrying about expensive transaction costs. The common currency backing was convenient for traders, but it also limited governments ability to raise inflation rates. Niall Ferguson writes in the Ascent of Money, “the long run stability of prices acted as an anchor for inflation expectations” (Ferguson 59). Because governments could control prices based on the amount of gold stored in inventory, the risk of inflation was low because the amount of gold stored was stable. This means prices do not fluctuate as much on a gold standard compared to fiat money. This stability is why there may still be sound reasoning for implementing a gold-backed

The gold sovereign consequently turned into the most astounding unit of quality, over the previous sterling cash. This change was joined by two further advancements. Initially, the supply of silver significantly expanded with the disclosure of huge stores of silver-bearing minerals in North America and Australia and the recharging of movement and fare of silver from since a long time ago settled mine operations in Mexico, South America, Germany, Spain, and Austria. Second, there was a huge extension of the white collar class in Europe, America, and Britain

At the end of World War Two, the Bretton Woods system was established for world currencies. This system involved countries fixing their currencies to the US Dollar, which in turn was tied to the value of gold at a fixed exchange rate of $35 per ounce. As this was a fixed exchange rate system it effectively forced countries to pursue a certain monetary policy, in order to keep their currency pegged to the Dollar and in turn the value of gold.

One of the characteristics of gold standard defined by Temin is that the adjustment mechanism for a trade deficit country was deflation rather than devaluation, that is, a change in domestic prices instead of a change in the exchange rate. In the event of a balance-of-payment deficit, countries on the gold standard could not devalue their currencies or expand the money supply to stimulate domestic demand, because by doing so would push up good prices, encourage more gold exports, and weaken the currency. Instead, they could only tighten monetary conditions with the goal of reducing domestic prices and costs until international balance was restored. “Critical to this process was the effort to reduce wages, the largest element in costs.” That is to say, the gold standard system must be maintained at the expense of the welfare of ordinary people, which they must either experienced wages fall or unemployment. This mechanism worked well to facilitate trade and exchange before the First World War, the reason,

1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of

1.The international financial institutions (IFIs) are central pillars and the architects of the global economy. The world bank and IMF were founded and funded by the United states after the second world war to build shattered world economy after the war and great depression of the 1930s (socialist alternative,). The creation of the IFIs was to bring about a global economy after the “isolation economy” which some argue brought about the Second World War. The IFIs were to help the economy of the less developing countries (LDCs) to bring about growth and development, a phenomenon known as globalization.