Evaluating the International Monetary System in Australian Banking

This report delves into the International Monetary System (IMS), defining it as a framework encompassing customs, rules, and regulations governing foreign payments and financial relations between nations. It highlights the IMS's role in facilitating foreign economic exchange, enabling the exchange of capital, goods, and services, fostering multinational currency cooperation, and ensuring smooth international transactions. The report outlines the four key components of the IMS: exchange rates and arrangements, international capital movements and reserves, international payments, and international transfers. It emphasizes the IMS's relevance to the Australian banking and economy, particularly concerning exchange rates, balance of payments, net income, and inflation and interest rates. Fluctuations in exchange rates directly and indirectly impact Australian banking by affecting the costs of goods and services, inflation rates, and economic activity. The report concludes that the IMS enhances financial stability, maintains price levels, boosts economic growth, provides capital flexibility, and determines exchange rates worldwide, thereby playing a crucial role in governing the global economy.

INTERNATIONAL
MONETARY SYSTEM

Table of Contents
INTRODUCTION ..........................................................................................................................3
Main Body.......................................................................................................................................3
Explanation of International Monetary System with its features and purpose with relation to
Australian Banking and economy...............................................................................................3
CONCLUSION...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The word International Monetary System is defined as the system that contains of the
customs, rules and regulations regarding the foreign payments. It is a set up that organise the
financial relations between different nations for bringing the cooperation between the economy
of different countries (Hefeker., 2018) . The following report looks into the importance and
features of International Monetary System. Moreover, it also explains its relevance of IMS in
terms of American Banking and its economy.
Main Body
Explanation of International Monetary System with its features and purpose with relation to
Australian Banking and economy.
International Monetary System- It refers to the system that controls the exchange of
money and its valuations across the different countries. It is a well-designed system that takes
care of international payments, flexibility of capital and exchange rates. It can also be defined as
the well-governed structure that has rule and regulations with respect to the calculation of
exchange rates and international payments. The role of International monetary system are system
are listed below-
 As lot of nations have currencies that are not accepted as the lawful remittance beyond
the line between the different countries, So IMS clear the way for foreign economic
exchange rates.
 The crucial segment of the IMS is to enable the exchange of capital, goods, and services
amid the countries. It comes up with the contribution in order to bring high economic
growth and stability. (Cooper., 2019)
 It fosters the multinational currencies cooperation, also it assist in the financial
international trade and with this it encourages high employment.
 It facilitates the smooth flow of transactions among the countries and its citizen by
keeping the track on the economy of different countries globally.
The features of International monetary system comprises of four components- exchange
rates and exchange arrangements, international capital movements and reserves, international
payments, international transfers. The IMS is usually classified in two dimensions , first is the
role of exchange regimes and the another one is the nature of reserve assets. The exchange rate

regimes involves the need of nations to convert the currency of one country with another, which
is possible to categorize the international monetary system on the ground of variability of foreign
exchange rates. The characteristics of the good IMS is the enhancement of output of the
economy globally.
Relevance of International Monetary system to the Australian banking and economy:
 Exchange Rate- The IMS controls the exchange rate which has effected the exchange rate
in Australian economy with respect to the currencies of other nations. The change in
exchange rates have made it in two ways- it has both directly and indirectly effected the
Australian banking and economy. The straight impact of the exchange rate mechanism on
the commodities and services manufactured in Australia in connection with the costs of
products are services produced in the other foreign country (Themeli). There is an
indirect relevance on the inflation rates and economic activity as the rotation in the prices
of goods and services that are produced within the economy of Australia and its frontiers
affects the decisions regarding the production and consumption of the commodity. These
two factors together have some implications on balance of payments as well. Like, When
the value of the Australian dollar loses its value, then the less foreign currency is needed
for the purpose to buy the Australian dollars. This will result in the decrease in cost of the
goods and services produced domestically as compared to the other countries or vice-
versa.
 Balance of payment- When there are fluctuations in the exchange rates, the actual areas
are change in the quantity of exports and imports. The changes in the exchange rates also
determines the movement for the balance of payments. It can have an additional
relevance through valuation effects on the net foreign obligations of Australia. The
reason behind this is that valuation effects occur because of the depreciation in the
Australian money increases the value Australian dollars of liabilities and assets.
 Net Income - The IMS regulates the exchange rates of an economy. The changes in the
Australian exchange rates affect the major element that is net income deficit.
Depreciation in the exchange rate regime has increased the cost of servicing international
debts for the retailers of Australia. Because the Australian currency needed to purchase
the currency of the overseas involves the payment of interest as the debt would increase.

 Inflation and Interest rates- The decrease in Australian currency will lead to the increase
in the inflation rate. The reason being is that the price of imported goods will increase
which will result in the increment of inflation rates (Pilkington., 2019). On the second
note, if the demand as whole will expand and also there will be the increase in the
employment. Then it will increase the wages , buying capacity, and other costs inputs for
manufacturing process. All these factors will lead to the high inflation rates.
CONCLUSION
With the discussion from the above report it is very clear that International Monetary
System improves the financial stability of the different countries. With the same, it is also clear
that it also focuses on maintaining the level of prices among the overseas, IMS assists in
boosting the growth of an economy, provides the flexibility in the capital and determines the
exchange rates across worldwide. It is also clarified that the International Monetary system is a
structure that is well-governed and well-designed and it is involved in making the rules and
regulations for each and every economy.

REFERENCES
Books and Journals
Hefeker, C., 2018. Interest groups and monetary integration: The political economy of exchange
regime choice. Routledge.'
Cooper, R.N., 2019. Currency devaluation in developing countries (pp. 183-211). Routledge.
Themeli, E., Sixth Session: Negative Euro Area Interest Rates and Monetary Policy in the
Western Balkans. In Negative Euro Area Interest Rates and Spillovers on Western
Balkan Central Bank Policies and Instruments. International Monetary Fund.
Pilkington, M., 2019. The libra project: A transnational monetary dystopia–analysis of the
disruption generated by the facebook-led stable coin.