History of International monetary system

Gold standard : Where gold was used as a reserve money Brettonwoods monetary arrangements where pound , dollar and gold were used as a reserve money Post Brettonwoods monetary arrangement where gold was dethroned and dollar is being used as a reserve asset

Era of gold standard

Firms buy and sell their currencies in exchange of gold. Gold standard effectively created a fixed exchange rate system. Exchange rate is the price of one currency in exchange of another currency Fixed exchange rate system: The price of a given currency doesn't change relative to each other currency. The gold created a fixed exchange rate system.

The Brettonwood era:

1. 2. 3.

In1944 under united nations , a monetary conference held at Brettonwood (New Hampshire, USA). The purpose of this conference was to devise international financial and monetary system. In this conference the white plane was approved , in this respect three institutions were setup International monetary fund International Bank of Reconstruction & Development (IBRD) International Trade organization (ITO)

International Monetary System

This important organization was set-up with the aim of encouraging economic co-operation between the nations of the world. There are now more than 140 member countries It is describe as fund because it holds stock of national currencies , each member country is obliged to contribute a certain amount a quotaof its own currency to the fund .Rich countries contribute more than poor countries , member countries may borrow foreign currencies from this fund.

Aims of International Monetary System

Encouraging countries to make their currencies convertible Encourage countries to to keep their exchange rates stable

How the value of rupee might fall?

1.
2. 3. 4. 5. 6.

The Pakistan demand for American goods or services increases Pakistani residents offer more rupees in exchange of dollar In the foreign exchange market the supply of rupee increases and demand for dollar increases The value of rupee in term of $ falls The rupee buys fever $ and the $ buy more rupees i.e. Exchange rate moves from rupee =75 $ to rupee 1=86 $(Exchange value of the currency fall .depreciated)

How the value of rupee might rise ?

1.
2. 3. 4. 5. 6.

American demand more Pakistani goods or services increases American residents offer more $ in exchange for rupee In the foreign exchange market the supply of $ increases and demand for rupee increases The value of rupee in term of $ increases The rupee buys more $ and the $ buys fever rupees i.e. Exchange rate moves from rupee =86 $ to rupee 1=75 $(When exchange value of the currency rises .appreciated)