What is International Monetary System? What is its need? How can it be evaluated?

International Monetary System are set of internationally agreed rules, conventions and supporting institutions that facilitates International trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality including deferred payment. To operate successfully, they need to inspire confidence to provide sufficient liquidity for fluctuating level of trade and to provide means by which global imbalances can be corrected. The systems can grow organically as the collective result of numerous individual agreements between International economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1994.

Sometimes formal monetary system have been imposed by regional rules. For example – scholars have tentatively suggested that the rulers Servius Tullius created a primitive Monetary system in the archaic period of what was to become the Roman Republic. Tullius reigned in the sixth century BC – several century before Rome is believed to have developed a formal coinage system. As multiple coins become common within a region, they have been exchanged by money changers, which are the predecessors of today’s marketing Venice and the Italian city states of the early Middle Ages, money changes would often have to struggle to perform calculations involving six or more currencies.
The international system is concerned not with the supply of international money but with the relationship among a hundred or so currencies of individual countries and with the pattern of balance of payment relationship and the manner in which they are adjusted and settled.

Thus the system is broader than monetary in that it is concerned with trade relationship and fiscal and other national policies as well. But to call it a system is to impute more formality to it than it deserves, even though it embodies a set of rules enunciated in the Articles of Agreement of the International Monetary Fund.

International monetary relations are governed not only be the fund rules but also by agreement and consultations among nations through other international institutions like World Trade Organisation (WTO), earlier General Agreement on Tariff and Trade Organization (WTO), earlier General Agreement on Tariff and Trade (GATT), Organisation for Economic Co – operation and Development (OECD) and now European Monetary Union (EMU), the Bank for International Settlement (BIS) and other international organisations.

A major reason why the international monetary system is afflicted with problems is that nations that participate in the functioning of the system are politically independent but economically and financially inter-dependent. This discrepancy defines the core function of the international monetary system. At its best, the system acts to reconcile the conflicting economic policies of politically independent members.

Thus to perform the reconciling function, the system is concerned. First, with those Economic policies with those Economic policies of its members that affect the other nations with how nations act deliberately or otherwise, regarding their balance of payment position economic order.

Thus, British American and other plans, finally culminated in the blue print which was developed at the Bretton Woods conference for the establishment of international organisations such as the International Bank for Reconstruction and Development (IBRD) popularly known as World Bank.