International Currency Systems and Exchange Rate Regimes

Abstract

AbstractIn the present day, the international currency system that defines the parameters of the foreign exchange market—a market where national currencies are exchanged and traded—acts as the money-changers of the yesteryears. Essentially, international currency system is a facilitator that provides a set of internationally agreed rules and means of payment acceptable between the buyers and the sellers of different nationality with different national currency units. The international currency system has been marked by three different phases. The first was the gold standard system during 1875–1944. The second phase was the Bretton Woods system (1944–71) during which the gold standard system was replaced by gold-USD exchange standard. The third and the current phase began with the abandonment of the Bretton Woods system during the 1970s and adoption of a flexible exchange rate system by many countries. This chapter discusses these different phases of the international currency system, the flexible exchange rate regime, and departures from it through interventions of different kinds in the foreign exchange markets by countries to protect their national interests. India’s exchange rate policies in the 1990s to mitigate its BOP crisis are discussed as a case study.