International Monetary System

What is the International Monetary System?

Before reading the text, match these words with their definitions.

1. output a. something that indicates the farthest limit, as of an area; border

2. exaggeration b. to make two financial accounts or statements agree

3. imposition c. to cause suffering or unhappiness to; distress greatly

4. boundary d. an adjustment, change, or modification

5. to afflict e. to think of or describe something as larger than it really is

6. to reconcile f. an amount produced or manufactured during a certain time.

7. alteration g. the action of making people pay a tax or of laying down conditions

Now read the text and answer the questions which follow.

International Monetary System

(1) There is little exaggeration in saying that international monetary developments affect all individuals as workers, consumers, travellers, businessmen producing goods for domestic or foreign markets, and investors at home or abroad. The channels which transmit the impact of monetary events to people in their various roles in society are numerous.

(2) Employment opportunities for some workers are improved when exports thrive and are weakened for other workers when foreign products compete effectively in price or quality with domestic output.

(3) A movement in the exchange rate may benefit an individual in one of his roles but leave him worse off in another. The individual as a consumer may have a different view of and a different interest in what happens in the international monetary sphere from that of the individual as a worker.

(4) Business activity is heavily influenced by international monetary conditions affecting prices, exchange rates, and interest rates, imposition of controls on exports or imports or on capital movements.

(5) Interdependence among nations has intensified lately, thus there is great interest in the functioning of the international monetary system.

(6) The international monetary system is a set of arrangements, rules, practices, and institutions under which payments are made and received for transactions carried out across national boundaries. The international system is concerned not only with the supply of international money but with the relationships among the hundred or so currencies of individual countries and with the pattern of balance-of-payments relationships and the manner in which they are adjusted and settled. Theinternational monetary systemis also a set ofrules and procedures by which different national currencies are exchanged for each other in world trade. Such a system is necessary to define a common standard of value for the world’s currencies.

(7) International monetary relations are governed by rules of the Articles of Agreement of the International Monetary Fund and also by agreements and consultations among nations through other international institutions: the General Agreement on Tariffs and Trade (GATT), the Organization for Economic Cooperation and Development (OECD), the Bank for International Settlements (BIS), the United Nations Conference on Trade and Development (UNCTAD), the World Bank Group and other organizations.

(8) The international monetary system is afflicted with problems. The main reason is that the nations that participate in it are politically independent but economically and financially interdependent.

(9) This discrepancy determines the functions of the international monetary system; at its best, the system acts to reconcile the conflicting economic policies of its politically independent members.

(10) In order to perform this reconciling function, the system is concerned, first, with how nations act to influence their balance of payments (BOP) positions, with their policies that affect exchange rates.

(11) The system is concerned, second, with how nations settle their accounts with one another. Third, the system is concerned with the amount and form of international money.

(12) In broad terms, the international monetary system involves the management, in one way or another, of three processes:

· the adjustment of balance-of-payments positions, including the establishment and alteration of exchange rates.

· the financing of payments imbalances among countries by the use of credit or reserves.

· the provision of international money.

Questions.

1. Who is affected by the international monetary developments? Give examples.

2. What is the international monetary system?

3. What is the international monetary system concerned with?

4. What are the major international monetary institutions?

5. Why is the international monetary system afflicted with problems?

6. What is the system concerned with in order to perform this reconciling function?

7. What three processes does the international monetary system management involve?