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The evolution of the international monetary system reflects the historical progression of global economic integration and the need for a stable framework to facilitate trade, investment, and financial flows across countries. This evolution can be broadly understood through several phases, each marked by distinct monetary arrangements, challenges, and policy responses. Initially, international trade was conducted on the basis of commodity money, where precious metals such as gold and silver served as a medium of exchange. In this period, countries maintained bilateral agreements, often pegging their domestic currencies to a specific quantity of gold or silver. The simplicity of commodity money facilitated trade, but it was limited by the supply and geographical distribution of these metals, often leading to deflationary pressures during periods of scarcity. The first significant standardized system emerged with the classical gold standard, which prevailed from the late 19th century until the First World War. Under the gold standard, currencies were defined in terms of a fixed weight of gold, and governments committed to convert domestic currency into gold at this fixed rate. This system facilitated predictable exchange rates, reduced transaction costs, and promoted international trade and capital flows. The gold standard required countries to maintain gold reserves to support currency convertibility, which _____ ________ ____ _________ ______ ______ ___ _____.
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