Chapter 22 International money and international monetary arrangements This chapter examines the current research on the basic purpose and functions of international monetary arrangements. The terms and conditions under which assets denominated in different currencies may be exchanged for each other are related both to the intrinsic worth or “purchasing power” of the different currencies and to restrictions imposed by the issuers of currencies as influenced by the agreed rules of the system. At the heart of such a system are the rules for financing and adjusting payments imbalances to insure continued convertibility. Research is done on the demand for reserve assets that is in principle dependent on the design of the system because it depends upon the chosen mix between adjustment and financing of payments imbalances. Thus one considers the effects of floating exchange rates the degree of capital mobility central bank intervention in exchange markets and the use of private bank financing of payments imbalances on the demand for reserve assets. The chapter also discusses the optimal design of international monetary arrangements. There is a potentially wide choice of degree of flexibility of exchange rates and degree of reliance on markets as opposed to institutions. Given national preferences and behavior recent analysis discusses how national policies interact under different sets of international monetary arrangements. Such analysis leads to proposals for changes in the design of the system to improve the international distribution of income to improve control over the growth of international reserve assets and to improve the macroeconomic performance of the world economy as it is affected by the interaction of national economic policies.