ABSTRACT
This chapter discusses the process of a country's adjustment to external imbalances as it actually occurred under the various international monetary systems. It explains about the history of the two most widely used international monetary systems, the gold standard and the Bretton Woods system. In the Bretton Woods system, all currencies were fixed to the dollar and the US government was obligated to exchange dollars for gold at a fixed price. Under the clean float option, the government has essentially left the exchange rate alone and allowed market forces determine the value of the currency in the foreign exchange market. The embodiment of the Bretton Woods system was an institution known as the International Monetary Fund (IMF). The IMF's initial function was to oversee the reconstruction of the world's international payments system. The chapter provides a method for analyzing the costs and benefits of the different types of international monetary systems.
