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International Monetary Policies (IMP) comprises of intertwined monetary rules, principles and various institutions that seek to enhance international trade. It also seeks to enhance cross border listing and providing supportive currency needs and capital reallocation. The IMP aims at providing a suitable environment for international trade through facilitation of the process of exchanging currencies in order to meet global trade obligations. The components of IMP include the central banks of all countries, institutions dealing with money market funds, various financial institutions operating at the international platform, and commercial banks among others. The major difference of the international monetary system to the financial assets is that money does not generate any interest. In IMP holds that money should be used to facilitate exchange of goods and services between and within countries. The IMP further assumes that money by itself does not generate any revenue but assists in determining the value of various financial assets and enhances growth of financial markets (Apte, 2010).
According to Apte (2010), money was traditionally used in storing a role that has been largely depleted by the financial assets which are used today in storing value. The international financial system also holds on to this view where international financial assets are sought for value storage. The IMP provides a monetary level ground for countries to trade by eliminating the global monetary imbalances. The IMP eliminates all the monetary bottlenecks that limits international trade especially the currency barriers.
International Financial System
The International Financial System (IFS) comprises of a wide range of financial assets that generate returns and interest. IFS contain financial markets and a wide range of banking and non-banking financial institutions which it uses to place value for these financial assets. The IFS is also involved in outside financial market activities such as leverage buyouts, equity hedging activities and personalized equity transactions among others. The IFS relies on these financial institutions to conduct its trade on the financial assets. Credit creation and allocation at the international platform is the sole idea behind IFS. Smooth operation of the IFS relies on the efficient and discreet management of the International Monetary Policy. Prompt currency availability which is facilitated by the IMP enables the IFS to hold up the system of payment. Additionally, the functions of the IFS go beyond those of the IMP which involve currency pricing and payments. IFS functions involve dealing with a wide range of financial assets such as derivatives and total direct collaboration with institutions that are involved in trading these assets (Shapiro, 2010).
Shapiro (2010) indicates that the IFS also deal with various control and regulatory bodies for the financial assets. It’s therefore correct to say that IFS covers the IMP but its functions and complexities go beyond those of the IMP. Government debt is observed to provide to provide a link between the two systems. This is because the government debt can operate as “close money” in an environment that has zero rate of interest. Government debt crisis results from inefficiencies of the IFS and the IMP. For example, the debt crisis….