Sustainability of the Current International Monetary System — An Analysis

Historical experience shows that a sound international monetary system should meet the following conditions: first, it should possess a solid base for currency issuance to keep the system stable. Second, such a system should be able to adapt to changes in international economic structure and environment. Third, the growth of the international reserve should keep pace with the growth of the global economy and the expansion of international trade; and it should neither trigger worldwide inflation nor cause inadequate international solvency. Finally, it should be able to effectively regulate and remedy balance of payments disequilibrium of countries. If an international monetary system fails to meet these conditions, it will cause increasing conflicts and problems, and the pressure to reform and restructure such a system will grow, and it will eventually be replaced by a new system. The characteristics and functioning of the international monetary system show that there are deep-seated structural causes for the instability in the international financial market. This chapter will use the conditions mentioned above to analyze the sustainability of the current international monetary system.