Monetary System

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Monetary System

 

the form of organization of monetary relationships, encompassing domestic monetary and credit circulation and the sphere of international payments. It developed first within the framework of national economies. With the formation of the world capitalist market, the monetary system of the capitalist countries was transformed into a world monetary system. At the start of the 20th century, the world capitalist monetary system reached its highest level of development. Its foundation was gold. The gold standard, which was established in the main capitalist countries, guaranteed stability of monetary circulation, freedom for capital to flow from one country to another and for international payments to be made, unlimited exchange of national currency, and the movement of foreign exchange rates within the limits of the gold points.

With the general crisis of capitalism, a crisis of the world capitalist monetary system set in. The gold standard collapsed. Gold ceased to function as a means of circulation and means of payments, but continuing to function as a measure of value and means of forming treasuries and world monies, it remains the foundation of the world capitalist monetary system. Although most international settlements are carried on by means of bank transfers without the participation of cash, gold remains the primary means for final settlement of mutual monetary demands and obligations in the capitalist countries, and the size of gold reserves is an important indicator of the stability of capitalist currencies and the economic potential of individual countries. In 1969 the official gold reserves of the capitalist world were estimated at $41 billion and corresponded to more than one-fifth of the total import of the capitalist countries. Despite the withdrawal of gold from circulation and the prohibition on ownership of gold in a number of countries, including the United States and Great Britain, in 1969 more than $20 billion worth of gold was held by private parties in the capitalist world. The circulation of nonexchangeable bank notes and paper money now established in the capitalist countries makes it possible for the monopolies to use inflation extensively as a means for additional exploitation of the toiling masses. In connection with the development of noncash settlements and the scarcity of gold, paper valuta is used in international monetary circulation. The largest shares in this circulation in 1968 were held by the US dollar (25-30 percent), the pound sterling (20-25 percent), the West German mark (5-6 percent), and the French franc (5-7 percent). The capitalist states intervene in the sphere of international payments, making extensive use of currency restrictions, payment agreements, devaluation, and so on. The International Monetary Fund and the International Bank for Reconstruction and Development, in which American and British capitalists occupy a decisive position, play an important part in the world capitalist monetary system. The weakening of US and British positions in world markets and the inflationary depreciation of their currencies are undermining the significance of the dollar and pound sterling as means of international payment. At the end of 1949 US gold reserves were $24.6 billion, or 70 percent of world reserves (excluding the USSR), whereas at the end of 1968 they had been reduced to $ 10.9 billion and were 26 percent of world reserves. The gold reserves of West Germany, France, Italy, and a number of other countries have increased. Failure to make full use of productive forces during the period of the general crisis of capitalism (chronic underuse of the production system, mass unemployment) is reflected in the monetary system: surpluses of loan capital increased, which influences both domestic markets and international settlements. In the world capitalist monetary system, the share of transactions not related to trade is increasing. During the 1960’s, 40 percent of the international payment turnover went for nontrade transactions. Inflation, changes in the structure of international monetary circulation, and other factors cause more and more frequent shake-ups of the world capitalist monetary system.

The socialist monetary system, which was established first in the USSR and later in the other socialist countries, has been transformed, with the formation of the world socialist market, into a world socialist monetary system. The international accounts of the socialist countries are built on the principles of equality and mutual advantage, and develop in a planned manner on the basis of the foreign-exchange monopoly. A majority of these accounts are directly tied to foreign trade. The transfer ruble is the primary means of international settlement among the socialist countries for both trade and credit relations. The International Bank for Economic Cooperation that was established by the member countries of the Council for Mutual Economic Assistance is an important link in the world socialist monetary system. Many settlements among socialist countries for nontrade transactions are carried out in national currencies. A permanent commission on monetary and financial questions of the Council for Mutual Economic Assistance is developing joint measures and organizing exchange of know-how in order to further strengthen and improve the socialist monetary system.

M. P. MIRONOV

References in periodicals archive ?
What's more, even if a new monetary standard were able somehow to overcome the network effects favoring established fiat monies, there is no reason for assuming that the new standard would be based on gold rather than some different, and perhaps as yet untried, exchange medium.
As is always the case with a legally fixed bimetallic monetary standard, the operation of Gresham's Law (5) ensured that, as soon as the current market price ratio of silver to gold deviated significantly from the legally fixed mint ratio, one metal would "chase" the other out of circulation.
To emphasize the contrary possibility, let us ask the following question: What would be the United States price level now, in November 2010, if a steady 4 percent inflation rate had prevailed since 1792, the year in which a United States monetary standard was first established?
Just a few years ago, 11 sovereign countries of Western Europe implemented their plan to shift monetary policy decisionmaking from the autonomous national central banks to a newly created supranational central bank and phased out the 11 national currencies in favor of a single monetary standard to be used by all.
Gold forms the basis for a monetary standard used by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS).
To disease as pathological lesion and to the Periodic Table as a list of physical elements, I suggest that we add here gold as a monetary standard.
The ubiquitous impulse to undermine the value of, and confidence in, the currency of one's enemies is testament to the indispensable role of a stable and reliable monetary standard in modern economies.
Such a vote of confidence would be the clearest sign that the ECB is succeeding in creating a secure monetary standard.
The leading alternative to the fiscal hypothesis, the view that government's purpose in establishing fiat money is to remedy a market failure to converge to a more efficient monetary standard, offers no explanation for the historical timing of the steps toward fiat money.
The nation sought to improve its banking system by establishing a means for providing an elastic money in the context of a monetary standard based on full convertibility to gold.
Three decades ago, Axel Leijonhufvud (1984: 23) proposed viewing the modern fiat money regime as "a random-walk monetary standard.
His contributions include creating a monetary standard, forming the foundation of our banking system, and establishing the creditworthiness of our young nation.