Special Drawing Right Is An International Reserve Asset Created By Imf

The Gold Standard was the framework by which the value of cash was characterized in terms of gold, for which the money could be traded. The Gold Standard ended up being deserted in the Depression of the 1930s. Friedman felt that,“The gold standard is not feasible because the mythology and beliefs required to make it effective do not exist. This conclusion is supported not only by the general historical evidence referred to but also by the specific experience of the United States” ( “The Gold Standard:Please Stop”).Economists who contradict the Gold Standard may perceive what must be accomplished with a specific end goal to make a centrally controlled paper standard better than a decentralized Gold Standard. Milton Friedman poses the key question: "How can we establish a monetary system that is stable, free from irresponsible tinkering, and

Most of the countries have their own central bank such as the Federal Reserve is the central bank of United States. First let’s discuss about the Gold Reserve, gold reserve is where the gold was held by a national central bank. There are many reasons why central bank reserve the gold, one of the reasons is to support the value of the national

After World War II, the Bretton Woods Agreement established the gold standard and two support institutions called the International Monetary Fund (IMF) and the World Bank. This would lead to a shift, away from the gold standard, to more relaxed systems. The idea of currency purely backed by gold was slowly being shifted to a trust based currency. These institutions purpose was to regulate the economies by injecting or taking money in a process called sterilization. Sterilization is to protect certain countries from a going bankrupt. If a country goes bankrupt, it chain a chain reaction of bankruptcies. So, in order to maintain balance, currencies need to be stable enough, so that it can be in debt without having to declare bankruptcy. The idea is

a. Inventories of gold and silver，when there is an effective government-controlled market at a fixed monetary value

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.

Further assumed that the export and import of goods and services between country A and country B perfectly offset one another. The balance of payments accounts of country A and B in theory would be zero. Otherwise, when exports are greater than imports, balance of payments would be in a deficit. In contrast, when exports are less than imports, balance of payments would be in a surplus. As more countries entered global commerce, determining the balance of payments required, netting of all the transactions of goods and services in respective currencies involved. Consequently, a fluctuation in relative currency strength could alter a country’s the balance of payments. Conversely, a country’s balance of payments surplus or deficit could strengthen or weaken its currency relative to others. Hence, stable global monetary system was essential for a stable global commerce. Accordingly many countries adopted the gold standard. Under the gold standard, a currency derived its value from gold. The gold standard provided an automatic rebalancing mechanism for trade imbalances. For instance, when gold reserve is used to settle a deficit balance of payment, it triggered a reduction in money supply, causing interest rate to rise, shrinking the economy and ultimately reducing consumption. The reduced consumption eventually returned the balance of payment to equilibrium. In contrast to a deficit, a surplus balance of payment led to the price inflation, making export less competitive, thereby correcting the surplus and returned the balance of payment to equilibrium. The gold standard, thus was an efficient system to manage the balance of payment accounts. Nevertheless, the one drawback of the gold standard was the scarcity of gold itself. Thus, consequence of limited gold supply was limited money supply which can lead to high interest rates impeding economic growth, a deflationary

International trading of currency within different countries has some of the same terms with the same meaning. None the less, although each country has a monetary system, problems can still arise whenever the exchange of capital is taking place remotely. Brigham

8. How can a central bank peg the value of its currency relative to another currency?

This would cause a problem when these times of crisis would end and the extra printed money caused rapid inflation with in that nation. That nation would then try to re-establish it 's rate hold per ounce of gold, yet not being able to internationally maintain that rate which would cause failure in this system. This is just one good reason I see as the collapse of the gold standard. I would say not. The problem is presented when a nation has the desire and ambition to grow yet there is only a set amount of gold and silver to be removed from the earth to back monetary value. When you have a limited amount of backing it kind of limits your growth and expansion. I could foresee a problem with any system if the players are too inconsistant and change the environment of the game too often. I currently have faith in our floating exchange rate system because it acommidates human inconsistancy and allows for frequent change with the ability to stabilize.

The purpose for this paper is to explain what is meant in terms of a world reserve currency in the financial world giving details of how the U.S. dollar became the prominent title owner. The paper will proceed to give a detailed understanding of the interworking of the world reserve currency with international trade and its importance to the U.S. economy. Also, the paper will mention the looming threats to dethrone the “all mighty dollar” of its world reserve currency status with far reaching ramifications to the American economy if that were to take place. In closing there will be a short summary of the important points discussed throughout the paper.

The possibility of the value that is fluctuated by the gold must be only by little percentage whether it is up or down. So, it is not attainable to devalue the gold by higher percentage. From this level, the gold dinar currency can be known as a good currency in international trade between the nations. If we have been using gold as our currencies against the traded products in the market, then there will be no such a problem regarding to the exchange rate. The using of the gold dinar is not intended to be used as a currency for our daily transaction but we can be used this for the national currencies. I found that this system have a good combination of few factors that will boost from any economic turbulence thus gives a lot of opportunity towards business sector in the international trade. By having the gold dinar system, the trades of bilateral and multilateral among the other countries can be straightening out thereby to eradicate the foreign exchange risk. For this mode, gold is to be utilized as a unit of account and a medium of trade rather than the national monetary

As the world economy begins to grow and develop, systems have been put in place to ensure a standardized unit of monetary measure to ensure fair trade between developing nations. The IMF or international monetary fund, is an organization that manages the exchange rate of currencies utilized in the international market, offers policy advice and gives loans to promote the countries prospering in the global economy; by the World Bank was “established to promote long-term Economic Development” and promote a better standard of living by “providing Technical and financial support” to Affiliated countries ("The IMF and the World Bank"). Together these facilities frequently collaborate to promote global economic success by promoting and

A currency board is a rule-based monetary institution that first established in the British colony of Mauritius in 1849(Kwan and Lui, 1999). Since then, the board introduced to more than 70 countries and issued money for British colonies, which included Africa, Asia, the Caribbean, and the Middle East as well as a few other small countries (Walters and Hanke, 1992). This development reached its heyday in the 1940s (Hanke, Jonung, and Schuler, 1993). After that, the Second World War changed this situation. The newly independent territories from British colonies replaced the currency board system to the central bank system. Until now, few currency boards still survived. Hence, some people supported that the currency boards is out of the centre stage with losing its practical importance on the basis of historical experiences. However, Kwan and Lui (1999) did not share the identical view with these people. They argued that the currency boards begin to attract widespread attention due to the effect on maintaining stable exchange rate, which is a significant feature to confront the global financial crisis. Because of this characteristic, Argentina (1991), Estonia (1992), Lithuania (1994) and Bulgaria (1997) have promulgated the law to support establishing the currency boards. If the result of this measure can stabilize the currency and economic effectively, many countries will introduce the boards eventually. As Schwartz (1993) had commented, “a watershed would have been reached

A country’s dominance in world trade, its status as the leading creditor and exporter of capital, initially underwrites its emergence as international money. The use of the currency of a country as the international reserve was both a logical outcome and a necessary basis of the development of capitalist internationally and the tremendous concentration of capital and trade flows in the hegemonic country. However, the perpetuation and preservation of its dominant role does not depends on its continued ‘creditor’ status but rather on its ability to attract and recycle capital from the rest of the world, while incurring a growing debt burden. It has to be the ‘borrower of last resort’. The imperative of maintaining international liquidity and maintaining sufficient global reserves depends on the ability of the country issuing the international money to sustain a deficit without eroding its status as a reserve currency.

Reserve assets are instruments available with government authorities for financing or regulating payment imbalances, it comprises of monetary gold, special drawing rights (SDRs) and foreign exchange. Central bank and treasuries use this instrument in financing the deficit. The reserves are also the balancing figure of the balance of payment account. If sufficient reserves are not available, a country needs to borrow money from institutions like the World Bank and International Monetary Fund (IMF).