ABSTRACT
The IMF, which governed the global monetary system under the Bretton Woods agreement, contributed to the global economic prosperity for two and half decades until it developed cracks in 1971 when the US dollar was required to be made non-convertible into gold. Demonetization of gold from the international monetary system also meant the abolition of the fixed exchange rates system. The switchover from the fixed and adjustable exchange rates system to floating exchange rates was, however, smooth and without much disruption in the global trade and financial world. The last three decades of floating exchange rates have witnessed a greater amount of flexibility and more frequent changes in exchange rates, more in line with the market signals than with the discretionary adjustments by the IMF and the member central banks. Naturally, the central banks have enjoyed greater freedom in pursuing their monetary policies, targeted more towards economic growth and inflation control, while the balance of payments disequilibria have been taken care of by the floating exchange rates mechanism. Yet, when the central banks desired to closely monitor the exchange rates of their currencies, the monetary policy was also required to be moderately bent towards this end.
