Strengths And Weaknesses Of The International Monetary System
Strengths and Weaknesses of the International Monetary System
The international monetary system was introduced in 1971 after the discontinuation of exchanging dollars for gold in foreign banks and instead fixed exchange rates were used. This move caused massive volatility of the exchange rate due to the flexibility of the exchange rates between different countries. To reduce the volatility, the European Union sought to integrate the currencies of different countries. The system has undergone major changes but it has helped many countries to trade and integrate the monetary systems of different countries. However, there are several weaknesses of the international monetary system. This study seeks to provide the more insights into the strengths and weaknesses of the system.
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The current international monetary system is in need of major reforms though it can be said that it has some strengths and weaknesses. The major limitation of the current system is that it has not facilitated the timely and symmetric adjustment in the real exchange rate that is necessary to accommodate the economies of developing countries into the global economy. The lack of adjustment of the international monetary system is one that is leading to frequent financial crisis and recession, and is inhibiting the global recovery because it is forestalling the required rotation of global demand. After recession, most of the world economies went into depression and this caused a large gap in the recovery of the currency, as the developing countries have weaker currencies compared to the developed countries, the international monetary system lacks the ability to accommodate the developing countries currency by making timely and symmetric adjustment whenever necessary as to reflect on the market
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