International Monetary Policies

Economics is defined as the branch of knowledge concerned with the production, consumption, and transfer of wealth. The fundamental principles of economics is clearly laid out, one can argue that the theories discussed in its study are universally accepted as truth. Yet, isn’t it interesting that given this information, the entire world continually fails to implement efficient and effective policies to control their economies in a sustainable matter? This analysis will evaluate the history of international monetary policies, beginning with the international gold standard, which emerged in 1871, followed by its predecessor, the Bretton Woods system, and conclusively the fiat currency system adopted in its demise, which is used presently. Each system contained its own set of advantages and disadvantages with regards to, international trade, balance of payments, economic growth, and inflation. When considering each system one mustn’t forget that there will always be an opportunity cost. This is a key point when discussing these three systems.

To begin, one must have an understanding of money. In the late 1800’s Germany adopted the gold standard. This meant that the currency issued was backed by a predetermined value of gold. To understand this, one may take into consideration a storage unit facility. People will place their valuables into these units in exchange for a receipt from the storage unit owners. This receipt is a direct claim on their goods. Applying this example to the gold system one will notice a secure element in the gold standard. As explained in greater detail later in this analysis, using the gold standard meant economies were only subjected to market forces. They couldn’t be manipulated in the ways we currently tr...

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