ABSTRACT
The sole purpose of the international monetary system is to facilitate international economic exchange. Most countries have national cur-rencies that are not generally accepted as legal payment outside their borders. You wouldn’t get very far, for example, if you tried to use dollars to purchase a pint of ale in a London pub. If you want this pint, you have to first exchange your dollars for British pounds. If you are an American car dealer trying to import Volkswagens for your dealership, you will need to find some way to exchange your dollars for euros. If you are an American trying to purchase shares in a Japanese company, you will have to find some way to acquire Japanese yen. International transactions are possible only with an inexpensive means of exchanging one national currency for another. The international monetary system’s primary function is to provide this mechanism. When the system functions smoothly, international trade and investment can flourish; when the system functions poorly, or when it collapses completely (as it did in the early 1930s), international trade and investment grind to a halt.
