Question

which of the following points would not be used as an argument in support of the current international monetary system?

it allows nations to pursue independent monetary policies.
it is flexible and can easily adjust to shocks.
it helps solve trade problems without trade restrictions.
it results in stable exchange rates.

Explanation:

Identify the current international monetary system

The current international monetary system is primarily a managed float system, where exchange rates are determined by market forces with occasional government intervention.

Evaluate arguments supporting the current system

• Independent monetary policy: Under floating rates, nations do not have to peg their currency, allowing independent monetary policy.
• Flexibility: Floating exchange rates adjust automatically to absorb economic shocks.
• Trade adjustment: Exchange rate fluctuations help correct balance of payments imbalances without resorting to trade restrictions.

Identify the incorrect argument

Stable exchange rates are a characteristic of fixed exchange rate systems, not the current managed floating system, which is characterized by exchange rate volatility.

Answer:

• It allows nations to pursue independent monetary policies.
• It is flexible and can easily adjust to shocks.
• It helps solve trade problems without trade restrictions.
• It results in stable exchange rates. (Correct answer)