Money and the International Monetary System: Origins and Evolution

The prevailing theories on the evolution of international money tend to neglect the reasons and conditions of the transition of commodity money, where the currencies’ face value corresponds to its intrinsic value, to forms of money in which this correspondence diminishes to practically disappear completely, as is the case with fiat money. This latter type of money, although characterized by an elasticity of supply with respect to the level of production that is considerably higher than commodity money, can only be accepted if suitable institutional mechanisms guarantee the stability of its value. At the national level this guarantee is offered by the state. In the international context, an international money exists when the conditions of a political exchange exist between a leading country, which bears the costs of producing trust in the fiat money (and the international monetary system based on it), in exchange for exploiting the seigniorage right, and follower countries, which attribute little weight to the relative gains made by the leading country’s exploitation of the seigniorage right and, at the same time, derive significant benefit from the existence of an international money, and the growth in trade and output associated with it.