Money, stability and the monetary system

Dear Editor

To begin with, this article defines money, and provides a general understanding of currency stability, along with important policies regarding trade between countries. Economists define money as a medium of exchange for goods and services. This means it could be used to pay for goods and services. Money is also income. In accounting, your cash in hand or at the bank is money. Money also consists of notes and coins; Treasury bills; promissory notes; checks; bank account; plastic money such as credit cards; now making its way into the digital world is cryptocurrency such as Bitcoin and other digital currencies.

There are many important functions of money: it must be generally acceptable in businesses and the community; it must be portable and durable, easy to carry around and long-lasting; a store of value. It can be saved in a bank or in cash for future payments; a unit of value. It must be able to divide into large and small quantities or units. Whatever money is today, it must have public trust and confidence that it can be exchanged for goods and services. We are living in the fiduciary system, where the value of currency must have public confidence that goods and services can be exchanged for money.

After the Second World War (1939-1945), the Breton Woods System was used to measure the value of currencies against the gold standard for countries around the world. The system was based on a fixed dollar in terms of gold. The dollar provides a fixed point, and other currencies’ values were measured in terms of the dollar. If an American dollar is worth 25 grains of gold and countries of the European Union euros worth 50 grains of gold, it would mean one euro will equal to two American dollars.

Under the Brent Woods System exchange rates were pegged to one another country’s currency, and were stable. Up until 1971 the fixed and floating exchange rates were in operation. A country in the fixed exchange gold standard must maintain its monetary currency in terms of a certain amount of gold, and must also allow gold to be imported and exported. The floating exchange rate allows the balance of payments of countries to adjust automatically, if imports rise faster than exports. In this case the supply of currency will increase, and there will be an exchange rate depreciation. Imports for the country will become more expensive, and its exports will be cheaper.

The floating exchange rates are managed by the market forces. If a country’s balance of payments showed a deficit or a surplus, devaluation or revaluation could be negotiated in the IMF system. In 1944 an adjustable peg system of exchange rates came into existence called the Breton Woods Systems. IMF was created from this organization as a monetary system to manage the debt problems of developing countries; manage the balance of payments deficits of countries; manage the fixed and floating rates of countries; it also lends foreign currency to countries to correct their balance of payments problems.

After the world depression of the 1930s and the Second World War 1939-1945, countries of the world had to finance war equipment from banks and other lending institutions; from then onward inflation in the money market and the cost of goods and services started to rise, and the cost of living become more expensive as a result. Today many countries are also affected by the COVID-19 pandemic crisis, natural disasters, high unemployment, healthcare and severe environmental problems. In 1999 inflation in the Caribbean was down to single digit figures. Most countries in the region are now reducing their balance of payments deficits. In St. Maarten the current account deficit in the balance of payments is of concern.

History. According to the quarterly bulletin of the Bank of the Netherlands Antilles 2000 stated that consumer prices were on the rise in the last quarter of 2000. Inflation jumped from 0.3% to 0.5% in that same year. In Curaçao and Bonaire inflation rose 5.7% and 4.5% respectively. St. Maarten experienced 0.8% in 2000. As one can see St. Maarten’s performance was excellent and did not depend on the rest of the Antilles to survive. In 2000 on St. Maarten healthcare was down, unemployment down, cost of living was also down. The island can still stand on its own taking the above factors into consideration.

Summary and Conclusion: The introduction of a new Caribbean Guilder currency is fast approaching by the ending of 2024. A series of questions are forthcoming about this new currency. Will it be pegged to the United States dollar like the Antillean guilder? What will be the exchange value? How will this affect the balance of payments deficit in the current account for the country? Why St. Maarten must join with Curaçao for the new currency, and St. Maarten has already dollarized? In 2003 Ecuador national currency, the Sucre was pegged to the US dollar at US $1 = S. 25000. The country is now using the US dollar as its main currency. How does this compare to St. Maarten’s situation?

It is important to learn about regional and trade and agreements to trade, and how countries can benefit from their policies and strategies. Most of the institutions and organizations listed below could help developed and developing countries diversify Their economies: CAIG, CDB, EECM, EU, IMF, IBRD, ACP-LOME, NAFTA, OECS, OPEC, WTO, World Bank. For your convenience.

Thank you for reading this article.

Joseph Harvey

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