What Is the Global Financial System?

The international financial system (The international financial system) refers to the general term for the rules, practices, policies, mechanisms, and organizational arrangements that regulate the currencies of countries in international payments, settlements, exchanges, and transfers. The international financial system is a concentrated reflection of international monetary relations, and it constitutes the overall framework of international financial activities. Under the market economy system, monetary and financial exchanges between countries are subject to the constraints of the international financial system.

International financial system

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The international financial system is a very complex system. In a broad sense, its constituent elements include almost the entire international financial field, which is mainly composed of the international monetary system, the international financial organization system, and the international financial regulatory system. But in a narrow sense, the international financial system mainly refers to international monetary arrangements, including: the international exchange rate system, the balance of payments and the international reserve system, the coordination of national economic policies and international economic policies.

The international financial system was born and developed with the continuous expansion of international economic exchanges. As goods and labor exchanges and capital transfers between countries become more frequent and faster, these activities must ultimately be settled and paid internationally through currency. As a result, there has been a requirement to coordinate currency relations among countries on an international scale. The international financial system is formed on the basis of coordination of the monetary, legal, and economic systems of many countries.

Judging from the historical development process, the modern international financial system has roughly gone through three stages of development, and each stage has a certain main financial system.

The first stage is the international gold standard period

It began with the gold standard in Britain in 1816 and ended with the outbreak of World War I.

The second stage is the period of the Bretton Woods system

It began in 1945 after the end of World War II and ended in 1973.

The third stage is the period of the Jamaican monetary system

It began in January 1976 when the Jamaica Agreement of the IMF Interim Committee was officially signed.

The background and role of the international financial system in different historical periods

The international financial system in different historical periods has its background and also plays an important role:

1. Determine the balance of payments adjustment mechanism and the regulatory policies that countries can abide by, and provide a basis for countries to correct the imbalance in the balance of payments;

2. Established a relatively stable exchange rate mechanism, which largely prevented unfair currency competitive depreciation;

3. Created diversified reserve assets, provided sufficient solvency for the development of the international economy, and at the same time resisted regional or global financial crises;

4. Promote the coordination of economic policies of various countries. Within the framework of a unified international financial system, all countries must abide by certain common rules, and any behavior that harms one's self-interest will be blamed internationally. Therefore, the economic policies of various countries can be coordinated and understood to a certain extent. Of course, any international financial system has its shortcomings. Therefore, the international financial system still needs reform and seeks development on this basis.