General Reference Pages for Courses

International Monetary Systems

1870 – 1914 Gold standard
fixed price relationship between domestic money and gold (fixed-rate system);
revised gold standard in the 1920s and early 1930s, until it collapsed during the Great Depression;
in the following gold exchange standard only foreign monetary authorities were allowed to exchange domestic currency for gold
period between the Great Depression and World War II.
fluctuating exchange rates, competitive devaluations, increasing use of trade restrictions to promote domestic employment (beggar thy neighbour policy)
1944 Bretton Woods Arrangement (gold-dollar standard)
pegged, but adjustable, exchange rate system among the members of the International Monetary Fund (IMF, 1945); values of currencies fixed in terms of the U.S. dollar, and the dollar in turn was convertible into gold ($35 per ounce of gold)
1950 – 1958 European Payments Union (EPU)
an international arrangement for settling payments among member countries in Europe during a period in which many of the countries' currencies were not convertible. The EPU functioned from 1950 to 1958, after which it was replaced by the EMA.
1958 European Monetary Agreement (EMA)
Currencies of European member states were allowed to fluctuate by ±0.75% with respect to the U.S. dollar.
The EMA was an international governmental organization to facilitate settlement of balance of payments accounts between member states. The EMA, which was administered by the OECD, existed from 1958 until 1972, replacing the EPU. The EMA provided for the convertibility of the currencies of member sates; that meant that the currency of one state could be exchanged directly for the currency of any other member state by nonresidents. In view of the facilities available for balance of payments assistance in the IMF, the OECD announced (1972) that the EMA would be terminated.
1959 – 1971 Bretton Woods Agreement
Currencies were allowed to fluctuate by ± 1% with respect to the U.S. dollar (IMF system of adjustable pegs).
1968 Special Drawing Rights (SDR)
First Amendment to the IMF Charter, creation of SDR to make up international liquidity.
Reason: as Robert Triffin pointed out, the gold-dollar standard with the dollar as key currency required the United States to continue to run balance of payments deficits in order to supply other countries with increased foreign exchange reserves. In doing so, the gold reserve of the United States became increasingly inadequate to guarantee the gold convertibility of the dollar at $35 per ounce (see 1971 below).
1970 Werner plan
three stage timetable for an European Monetary Union;
plan stopped during recession 1973/74 (oil crisis)
The Bretton Woods Arrangement collapsed, when Nixon suspended the convertibility of dollars into gold. The currencies of the western European countries began to float, as did most other currencies.
December 1971 Smithsonian Agreement
The band of the Bretton Woods Agreement was enlarged to ±2.25%.
1972 European Currency System
The members of the European Economic Community (EEC) wanted an exchange-rate agreement to complement their customs union. An early step was taken in this direction when the nations instituted the so-called "snake in a tunnel" (Basel Agreement 1972).
6 April 1973
Exchange-rate fluctuations between EEC members were limited (±2.25%), and the currencies moved in a narrow, undulating, snakelike pattern against the U.S. dollar (also ±2.25%) and other outside currencies.
January 1976
Second Amendment to the IMF Charter, the result is in fact an international laissez-faire system (free choice of exchange rate system)
13 March 1979 European Monetary System (EMS)
Most of the members of the EEC (with the important exception of the United Kingdom) entered a more formal agreement, the EMS, which had some characteristics of the old IMF system. Exchange rates were to be pegged to a European Currency Unit (ECU), made up of a basket of European currencies (Exchange Rate Mechanism, ERM).
However, there were three important differences from the old IMF system:
  1. the flexibility around the official rate was as much as 2.25% (6% for the Italian lira), substantially wider than the 1% under the IMF system;
  2. official rates were to be adjusted more quickly and frequently than the IMF par rates; and
  3. the U.S. dollar was not included in the EMS system; thus, the EMS currencies fluctuated as a group against the U.S. dollar.
The European Monetary Cooperation Fund (the predecessor of the EMI) was established to perform the intervention system.
August 1993
de facto break down of the EMS (spreading the flexibility around official rates to ±15%)
1990 – 1999 Introduction of the Euro
Three stage timetable for the European Economic and Monetary Union (EMU) towards a single currency — say Euro — according to the Delors-Report.
  1. Stage (1 July 1990):
    all restrictions on movements of capital abolished; exchange rate mechanism (ERM), free use of ECU
  2. Stage (1 January 1994):
    strengthen central bank cooperation and monetary policy coordination; establishment of the European Monetary Institute (EMI)
  3. Stage (1 January 1999):
    permanent and irrevocable locking of exchange rates, single currency (1 ECU = 1 Euro; deposit currency) establishment of the European System of Central Banks (ESCB) and winding up of the EMI.
    intra-EU exchange rate mechanism (ERM II)
    Stability and Growth Pact
1992 Maastricht Treaty
economic and monetary union (EMU) + single currency
spring 1998
(political) decision what Member States are allowed to participate in the EMU (convergence criteria)
January 2002
Euro notes and coins

Black, S.W., International Monetary Institutions, in: Eatwell, J., Milgate, M., Newman, P. (eds), The New Palgrave, A Dictionary of Economics, Vol. 2, London : Macmillan, 1998, pp. 917 – 920.

Jarchow, H.-J., Rühmann, P., Monetäre Außenwirtschaft, II. Internationale Währungspolitik, 3. Aufl., Göttingen : Vandenhoeck & Ruprecht, 1993.

Wang, P., The Economics of Foreign Exchange and Global Finance, Berlin : Springer, 2005.