International Monetary System

The International Monetary System in the 21st Century:
Could Gold Make a Comeback?

This case study gave us the explanation of how gold will intersect with the international monetary system in the next century. Since 1960s gold has been an important feature in monetary system, shown by monetary authorities who only   held gold, the only commodity, as reserve. A substitute of gold is called Special Drawing Right (SDR), created by IMF in 1968. In contrary, during an attemp to encourage the acceptance of SDR, gold was still significant in international monetary measurement.

Gold has been desired since ancient world, for even then many empires used gold as reserves; a commodity they held in readiness to support their economy. Clay notes and seals were convertible to represent the exchange of gold, so the real valuables can be kept in someplace safe. These notes and seals soon needed a replacement that had same value and can be used in many places. Therefore there was a need to standardize the medium of exchange which marked the birth of coins.
Ancient people made coins to gain profits, they marked up the face value of the metal plate; the value of gold represented by the coins are actually smaller than what was stated in the coins. These gain were used by kings to achieve their goals, such as conquering other empires. But overvalued coins could not be in free market forever, this condition means there were false scarcity, monopoly and goverment control, for gold and silver mines controlled by government.

Before 1971, international monetary system was linked to gold, such as US dollar, anchored to gold and then other currencies should each stabilize their currencies to the anchored dollar. As a result, this gold standard system created an interdependence of the currency system, fixed exchange rates, and stabilized inflation. But after 1971, the gold standard broke down and international monetary...