importance of monetary system

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Feudal and subsequently bourgeois states legislatively regulated the conditions and forms of monetary turnover, establishing certain kinds of currencies, the rate of exchange of these currencies, and the conditions of their interchangeability and convertibility into real money (or into foreign exchange which could be converted into gold). The system of regulation of the issuance of money in socialist countries flexibly combines the strictly centralized management and control of money issuance operations with the organizational and technical implementation of these operations at the local level. The establishment of IMF and World Bank is the result of the agreement among nations to set a body, which promotes and supports the international trade. An important role in the strengthening of the socialist monetary system is played by the currency monopoly, which ensures economic and political independence and the planned development of the economy of each country and the stability of its monetary system. The principle of centralization of the planned management of monetary systems is consistent with the economic role of a socialist state; it also reflects the importance of a monetary system which in a planned economy must ensure the coordination from a single center of activities of all elements of the economic structure. With banknote circulation, the following subtypes of monetary systems are possible: (1) banknotes freely redeemable for gold in bullion (gold-bullion standard); (2) banknotes indirectly redeemable for gold through foreign currencies convertible in gold (gold-exchange standard); (3) banknotes redeemable with limitations for foreign exchange (allowed to all citizens, only to foreigners, only on current items of balance of payment, or different combinations of these conditions—at a single or differentiated rate of exchange); (4) restricted redemption of banknotes and monetary media on current accounts, redeemable in gold only for foreign central banks of issue (such an exchange system existed after World War II until August 1971 only in the USA); and (5) the inconvertibility of money media in the accounts of central and other banks either to gold or to foreign exchange (closed currency).With regard to their role and importance in the capitalist world economy, there are three distinct types of monetary systems: imperialist systems, which play a leading role in currency blocs or areas; colonial and dependent systems; and sovereign systems. Under socialist monetary systems, promissory (payment) notes (such as bills of exchange) do not circulate outside of banks and cannot function as credit circulation media: the issue of circulation media not only is monopolized by the government but also is centralized in one governmental body. A Monetary System is defined as a set of policies, frameworks, and institutions by which the government creates money in an economy. During World War I and the following period of economic reconstruction, the most acute paper-money inflation in the history of capitalist countries set in. Systems of both metallic and nominal-money circulation became predominant under the conditions of the general crisis of capitalism. Some of the important achievements of the international monetary system over the years have been the establishment of World Bank and International Monetary Fund in the year 1944. Economists across the world have commended its role in enforcing monetary discipline among its members. The European Monetary System (EMS) was an adjustable exchange rate arrangement set up in 1979 to foster closer monetary policy co-operation between members of … Thus, the government’s stand may affect the decision making of the international monetary system. The financial system plays a critical role in the economy. Thus, in 1944, 730 representatives of 44 nations met at Bretton Woods, New Hampshire, United States to create a new international monetary system.This was called as the Bretton Woods system, which became a turning point in the history of international trade. The policy frameworks within which central banks operate have been subject to major changes over recent decades.Since the late 1980s, inflation targeting has emerged as the leading framework for monetary policy. International monetary system refers to a system that forms rules and standards for facilitating international trade among the nations.It helps in reallocating the capital and investment from one nation to another.It is the global network of the government and financial institutions that determine the exchange rate of different currencies for international trade. The spheres of the cash and noncash settlement of accounts are strictly delineated by law. However, treasury bills are not issued to cover a deficit in the state budget: treasury bills are issued by the same procedure as banknotes and are actually backed in the same way—by both commodities and gold. The central banks of nations were given the task of maintaining fixed exchange rates with respect to dollar for each currency.The Bretton Woods system ended in 1971 as the trade deficit and growing inflation undermined the value of dollar in the whole world. Under the socialist monetary system, the entire money turnover, including all settlement of accounts (cash and noncash) of enterprises, economic organizations, and institutions at the state, cooperative, and public levels are concentrated in a single governmental credit system. For example, change in the trade policy of a government may affect the international trade of goods and services.International monetary system motivates and encourages the nations to participate in the international trade to improve their BOP and minimize the trade deficit. In systems of the circulation of nominal money, the money commodity does not function at all in monetary form: these systems include paper money circulation and banknote circulation. There are three common types of monetary systems – commodity money, commodity-based money, and fiat money.

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