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Chapter 2

The document outlines the evolution of the global monetary system from the Gold Standard era (1876-1913) through various phases including the Interwar Years and WWII, Bretton Woods, the Floating Era, and the Emerging Era. Key developments include the establishment of fixed currency values tied to gold, the introduction of the IMF and World Bank, and the transition to floating exchange rates. The current era highlights the rising influence of emerging market economies and a more diverse global monetary landscape.

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4 views2 pages

Chapter 2

The document outlines the evolution of the global monetary system from the Gold Standard era (1876-1913) through various phases including the Interwar Years and WWII, Bretton Woods, the Floating Era, and the Emerging Era. Key developments include the establishment of fixed currency values tied to gold, the introduction of the IMF and World Bank, and the transition to floating exchange rates. The current era highlights the rising influence of emerging market economies and a more diverse global monetary landscape.

Uploaded by

nawrre
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

The Gold Standard, 1876–1913

Under the gold standard, countries fixed their currency


values to a certain amount of gold and agreed to exchange
money for gold at that rate. This kept exchange rates stable
between countries, but required governments to hold enough
gold reserves. It also limited how much they could increase
the money supply because issuing more currency required
sufficient gold.

The Interwar Years and World War II, 1914-1944

In the 1920s, flexible exchange rates and currency


speculation failed, leading to a decline in world trade during
the Great Depression. The U.S. adopted a modified gold
standard in 1934, devaluing the dollar and limiting gold trades
to foreign central banks only. By the end of World War II,
most currencies lost convertibility except the U.S. dollar.

Bretton Woods and the International Monetary Fund (IMF), 1944

The Bretton Woods Agreement established a U.S.


dollar–based international monetary system and led to the
creation of the IMF and the World Bank. The IMF provides
temporary financial support to countries with balance of
payments problems, while the World Bank supports
reconstruction and development. The system also introduced
Special Drawing Rights (SDRs), an international reserve asset
used to supplement countries’ foreign exchange reserves.

The Floating Era, 1973-1997

The floating era is where currency values were


determined mainly by market demand and supply. This made
exchange rates became more volatile and unpredictable. This
era brought more flexibility in exchange rates but also greater
instability.

The Emerging Era, 1997–Present

The emerging era has been marked by the growing


influence of emerging market economies and their currencies
after the Asian financial crisis. The global monetary system
has gradually included currencies such as the Chinese
renminbi. This period reflects a shift toward a more diverse
and inclusive global monetary system.

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