International Monetary SystemAn international monetary system can be defined as “rules, customs, instruments, facilities and organizations for making international payments” (Salvatore, 2012). There are three perspectives on the role of the international monetary system: determining exchange rates, adjusting for balance of payments imbalances, and providing global liquidity (Jenkins and Zelenbaba, 2012). Exchange rate movements can impact domestic monetary policy management and have consequences for 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 time and cost of balance of payments disequilibrium, providing sufficient international reserve assets to correct balance of payments deficits without deflation, and providing sufficient knowledge about the adjustment mechanism and international reserves constitute the good performance of the international monetary system. role of the international monetary system in promoting global trade and investment. Since most countries have their own national currencies, no authorization for legal use outside their country's borders and separate national currencies can pose a significant barrier to international transactions. Thus, the international monetary system was adopted to facilitate international economic exchanges. This system can boost international trade and investment when it functions smoothly; the system can slow down international trade and investment when it malfunctions or collapses. There are several systems of classification of exchange rates, for example nominal, effective, real, fixed and floating...... middle of paper ......art In 1939, the gold standard ended ( Hill, 2011).The gold standard mechanismIn this system, national currencies are exchanged at a permanently fixed exchange rate and certify their convertibility. This exchange rate was based on the nominal value of gold, which is the amount of currency needed to purchase an ounce of “fine” or pure gold. With a permanently fixed exchange rate, prices in each country moved in response to cross-border gold flows (Bordo and Kydland, 1995). Additionally, the gold standard contains powerful self-contained operations such as a "price-species flow mechanism" and "rules of the game" that simultaneously lead all countries to equilibrium in their balance of payments. (Krugman and Obstfeld, 2003). This balance will occur when the money that a country's population spends on imports balances with its population's earnings from its exports between nations..