International monetary system

An international monetary system is a set of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between states that have different currencies. It should provide means of payment acceptable to buyers and sellers of different nationalities, including deferred payment. To operate successfully, it needs to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade, and to provide means by which global imbalances can be corrected. The system can grow organically as the collective result of numerous individual agreements between international economic factors spread over several decades. Alternatively, it can arise from a single architectural vision, as happened at Bretton Woods in 1944. Reserve currency Throughout history, precious metals such as gold and silver have been used for trade, sometimes in the form of bullion, and from early history the coins of various issuers – generally kingdoms and empires – have been traded. The earliest known records of pre-coinage use of precious metals for monetary exchange are from Mesopotamia and Egypt, dating from the third millennium BC. Early money took many forms, apart from bullion; for instance bronze spade money which became common in Zhou dynasty China in the late 7th century BC. At that time, forms of money were also developed in Lydia in Asia Minor, from where its use spread to nearby Greek cities and later to many other places. Sometimes formal monetary systems have been imposed by regional rulers. For example, scholars have tentatively suggested that the Roman king Servius Tullius created a primitive monetary system in the early history of Rome. Tullius reigned in the sixth century BC – several centuries before Rome is believed to have developed a formal coinage system. As with bullion, early use of coinage is believed to have been generally the preserve of the elite. But by about the 4th century BC coins were widely used in Greek cities.