International monetary system An international monetary system can be defined as “rules, customs, instruments, facilities and organizations for making international payments” (Salvatore, 2012). There are three perspectives of the role of the international monetary system: exchange rate determination, balance of payments disequilibrium adjustment, and global liquidity provision (Jenkins and Zelenbaba, 2012). The movement of exchange rates can influence the management of domestic monetary policy and its consequences on global liquidity. In other words, the international monetary system can be evaluated in the following terms: adjustment, liquidity and confidence (Salvatore, 2012). This means that minimizing the adjustment times and costs of balance of payments disequilibrium, providing sufficient international reserves to correct balance of payments deficits without deflation, and providing sufficient knowledge about the adjustment mechanism and international reserves are the appropriate performances of the international monetary system. Role of the International Monetary System in Promoting Global Trade and InvestmentSince most countries have their own national currency, no permission to legally use it outside their country's borders and distinct national currencies can pose a major barrier to international transactions . Therefore, the international monetary system was adopted to facilitate international economic exchanges. This system can stimulate international trade and investment when it runs smoothly; the system can slow international trade and investment when it performs poorly or collapses. There are different classification systems of exchange rates, for example, nominal, effective, real, fixed and variable... middle of paper... introduced in 1939, the gold standard was abolished (Hill, 2011).The mechanism of the gold standardIn This system, national currencies exchange at a permanently fixed exchange rate and certifies convertibility. This exchange rate was based on the nominal value of gold, which was the amount of a currency needed to purchase one ounce of “fine,” or pure, gold. With the exchange rate permanently fixed, prices in each country moved in response to cross-border flows of gold (Bordo and Kydland, 1995). Furthermore, the gold standard contains some powerful autonomous operations such as the “price species flow mechanism” and the “rules of the game” which simultaneously leads all countries to balance of payments equilibrium (Krugman and Obstfeld, 2003). This equilibrium will occur when the money that the population of a country spends on imports balances with the earnings that the population earns from exports between nations..