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Briefly describe the current International Monetary System. How does the Current systems differ from the system in place before August 1971. Before 1971, the world operated on a fixed exchange rate system. The value of the U. S. Dollar was linked to gold at the fixed price of $35 per ounce, and the values of other currencies were then tied to the dollar; For example, in 1964, the British pound was fixed at $2.80 for 1 pound, with a 1 percent permissible fluctuation around this rate. Thus, the British government regularly intervened in the foreign exchange market to keep the pound from $2.77 to $2.83. The Bank of England had to buy pounds when the pound fell, offering foreign currencies or gold in Exchange. Conversely, the Bank of England would sell pounds if the pound reached the top of the range. The official exchange rates were occasionally reset to reflect changing economic conditions. The current international monetary system is a floating rate system for most industrialized nations. With minimum governmental intervention, currency exchange rates can fluctuate in response to market conditions. Changes in currency demand can be due to trade deficits (i.e., one nation imports more from another nation than exports, causing higher relative demand for the currency of the bigger exporter). It can also be due to capital movements. For example, if interest rates are relatively high in one country, investors might seek to purchase that countrys securities, increasing demand for that countrys currency.