Impacts of International finance on the United States

 
 
 
 
 
 
 
History of International Finance
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History of International Finance
Introduction
The phenomenon of international finance dates to pre-historic times when human race primarily relied on natural produce but travelled extensively to one region of the earth to other in search of better living conditions. These journeys allowed human race to interact with their fellows and a part of this interaction appeared in terms of exchange of valuable goods and services. This era relied on barter system as primary financial tool. Later, gold and silver was identified as currency and allowed standardization of values attached to goods and services. Traveling individuals and businesses started taking medium term approach towards preservation of value of their goods. Gold-based exchange system further evolved in classical gold standard; thus, initiating modern era of international finance.
The modern era of international finance has four distinct sub-parts. First of these, as discussed above, begins with prevalence of classical gold standard. This era witnessed a link between the prevailing currency within an economy and the amount of gold its government maintained. The second era, interwar period, points toward anarchy in the international markets, where countries deceptively varied values of their currencies to benefit from the export conditions in international markets. In 1944, the United Nations Monetary and Financial Conference concluded in Bretton Woods Agreement that mitigated these deceitful practices. The Agreement urged the involved governments to peg their currencies’ value with gold while the US dollar will act as a reserve currency. The US government abolished this system and flexible exchange rate regime started in 1973. This regime prevails till now.
Classic Gold Standard
This era presented the start of modern monetary system in which paper currency gradually replaced the gold and silver media of money. This era started when banks started issuing notes, which were backed by species including gold, silver and other valuable minerals including copper coins. Soon governments joined this mechanism of issuing notes instead of species and a country-wide monetary system came in being in the UK. With time, other countries also adopted this system and it spread across continents into the Americas, Australia, and Asia. In this system, the gold, or silver or both, were given a fixed monetary value. By the start of twentieth century almost all countries in the world had become part of this system.
In theory, this standard proved most reliable and consistent in the history of international finance. The standard worked by giving a common ground to all the countries to match their currencies’ worth with each other (Miles, 2014). For example, a country which has strong exports will witness an increased inflow of cash in the form of gold. This inflow will enhance the lifestyle of local people and increase the national spending resulting in correction in increased money supply within the country. A deficit ...