Central Banking: Theory and Practice in Sustaining Monetary and Financial Stability

Chapter 2A Brief Overview of the International Monetary System

Learning Objectives

1. Describe key features and explain limitations of the gold standard.
2. Describe key features and explain limitations of the gold exchange standard.
3. Describe key features and explain limitations of the Bretton Woods system.
4. Describe key features of the international monetary system after the collapse of the Bretton Woods system.
5. Explain plausible causes of the global financial crisis of 2007–2010.

In Chapter 1 we reviewed a brief history of central banking. In this chapter we will take a brief look at the evolution of the international monetary system to better understand the context in which central banking practices have evolved. International elements have always been present in the history of central banking, since the day that the Bank of Amsterdam was set up to sort out coins of different makes by different sovereigns. With the advent of the gold standard, central banks pegged the value of their currencies to the value of gold. As the global economy evolves, central banking practices continue to evolve along with it.

This chapter divides the history of the international monetary system into four sections. The first section covers the historical period before the end of World War II, and includes specifically the gold standard, the gold exchange standard, and the global financial turmoil of the early twentieth century resulting from World War I and World War II.

The second section covers ...