Assignment in the elective module: International Finance and Globalisation (MN7574)
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Describe the three key institutional bodies established in the Bretton Woods agreement. What was their purpose, and how did they operate? Give an account of the collapse of the agreement and discuss the consequences of this collapse for international finance.
This coursework is submitted as part of the requirements for the award of the MSc in Finance
University of Leicester – School of Management
Leicester
July 2014
Table of Contents
Introduction 3
Section 2: Bretton Woods Institutions: purpose of establishment and cooperation 4
Section 3: Bretton Woods: The chronology of events 6
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Opponents of the EU argue that since the formation of the Euro area we have observed an increasing divergence between the northern and southern European countries; with the former enjoying the majority of the benefits of the common currency and the latter facing significant issues with their macroeconomics and struggling to keep up with their northern counterparts.
The formation of the EEA, however, was not the first attempt by societies to converge their interests under a common economic policy. Its predecessor, the Bretton Woods system that was formatted in 1944, endeavoured to set up a set of rules that would define the monetary relationships between a number of countries. Its primary feature was the commitment by the member nations to maintain a relatively fixed exchange rate against the dollar, which was tied to gold at a fixed rate.
Alongside with the set up of the system, the members agreed to establish two institutional bodies that would oversee the members’ activities, provide assistance when needed and maintain the cooperation between the members. Those were the International Monetary Fund (IMF) and the World Bank of Trade and Development (World Bank). Subsequently, the members aimed to establish the International Trade Organization (ITO) that was replaced by the General Agreement on Tariffs and Trade (GATT). All three
To discuss its historic background I will concentrate on the Bretton Woods System. Bretton Woods System is an international currency system started form 1944 July at the end of the Second World War. This system require each country to obey the rule that they tied its currency to gold in order to keep the exchange rate stable and prevent the currencies from devaluation. The establishment of this system ensure the resume and development of capitalist world economy especially America. Although this system ultimately disintegrated in 1973, it still make significant contributions to America’s irreplaceable role today.
The European Union (EU) is a unique economic and political partnership between 28 different countries. It consists of about half a billion citizens, and its combined economy represents about 20 percent of the world’s total economy (Briney, 2015). Today The European Union works as a single market, with free movement of people, goods and services from one country to another. There is a standard system of laws to be followed, and since 1999 many countries share a single currency called the Euro (Europa.eu, 2015). This essay will explore the background history of the European Union and the benefits and drawbacks of the European Union.
At the end of World War Two, the Bretton Woods system was established for world currencies. This system involved countries fixing their currencies to the US Dollar, which in turn was tied to the value of gold at a fixed exchange rate of $35 per ounce. As this was a fixed exchange rate system it effectively forced countries to pursue a certain monetary policy, in order to keep their currency pegged to the Dollar and in turn the value of gold.
* The first post-war period (1945-1975) witnessed strong economic growth and gradual increase in globalization under the Bretton Woods institutions. What do we mean by “the Bretton Woods institutions” (Background Brief: Bretton Woods Institutions)? What role did the US play in setting up these institutions and what were its motives?
July 1 to 22, 1944 in Bretton Woods, New Hampshire, the Bretton Woods Conference took place to agree on new rules for the post-WWII international monetary system. Ensuring a foreign exchange rate system, promoting economic growth, and preventing competitive devaluations was the main goal. The International Monetary Fund and the International Bank for Reconstruction and Development were major
After World War II, the Western economic powers implemented the Bretton Woods System, an attempt to concurrently return to, build upon, and strengthen the pre-World War I economic system. The stringency of the Gold Standard was replaced by an economic system in which currencies were tied together by the more flexible US dollar, which was itself backed by gold. Free trade was reimplemented by GATT, which would later become the WTO. Under the Bretton Woods System, the world saw an incredible amount of post-war economic growth. Jeffry Frieden points out that in the postwar period, advanced capitalist nations “grew three times as fast as in the interwar years and twice as fast as before World War I”. The Bretton Woods System allowed for
In 1944, 730 delegates from all 44 allied nations met in Bretton Woods, New Hampshire; in what would be later known as the Bretton woods conference. The purpose of this meeting was to discuss methods to regulate the international monetary and financial order after the conclusion of world war ii. A system of exchange rates agreed upon between the world 's major industrial nations , it tied the value of the U.S. Dollar to gold and the value of other currencies to the U.S. Dollar. Under the Bretton woods system, the external values of foreign
In Bretton Woods, New Hampshire, representatives from the Allied nations met to change that. The agreement they struck, known as the Bretton Woods system, provided what they believed to be the necessary infrastructure to facilitate this increasingly global economy. All currencies would have a set exchange rate, in gold-backed dollar terms. This would, in theory, make global transactions involving different currencies simple and easy to regulate. The International Monetary Fund was established to make sure that these exchanges ran smoothly and that countries could meet their obligations.
participants in this conference created three organizations to help regulate the international economy. The first is the International Monetary Fund (IMF) which was established with the idea of regulating monetary policy. One of the benchmarks of the IMF is the stabilization of exchange rates and the loaning of money to help stabilize countries with balance of payments deficits. The second organization established was the General Agreement on Tariffs and Trade (GATT) whose main focus was on a liberal trading order.
Under the Bretton Woods system, members of the EEC did not need to worry about converting their currency into gold. EEC members were also able to take advantage of using unconvertible currencies and devaluing their currencies to correct for problems with their balance of payments.
The Bretton Woods System was formed as a result of the collapse of the Golden Standard and The Great Depression. These closely related events prompted the need to establish an international monetary system, whose main aim was to revive the economies of the Post World War as well as fostering international economic relations that would end inter-war conflicts.
The Bretton Woods system was created in July 1944 by the United States and its allies in order to formulate a plan for European recovery and create a new postwar international monetary and financial system that was supposed to encourage grow and development (Balaam, Dillam 2011). The Bretton Woods financial and monetary structure was supposed to ensure exchange rate stability and encourage its member countries to eliminated exchange rate restrictions that hinder trade. The International Monetary Fund (IMF) and the World Bank were conceived by the Bretton Woods system (International Monetary Fund). The countries that joined the IMF adopted an alternated version of the former gold standard’s
Here the International Monetary Fund and the International Bank for Reconstruction and Development, later divided into the World Bank and Bank for International Settlement, were established. To regulate the international policy economy these institutions become known as the Bretton Woods institutions and became operational in 1946. The IMF, founded to stabilize countries' currencies in relation to each other, holds money in trust, which member countries can borrow according to terms set by the institution. The World Bank instead gives more long-term loans and sells bonds to corporations and governments, which bind the issuer to pay the bondholder the amount of the loan plus interest. However, the countries taking advantage of the opportunity to borrow money to improve their affected economy are obliged to launch a set of policies, known as the Washington Consensus, which was first presented in 1989. The reforms introduced by the Institute for International Economics include "deregulation, privatization, currency devaluation, social spending cuts, lower corporate taxes, export driven strategies, and removal of foreign investment restrictions" . More, "these loans are only granted when the countries agree to the adoption to a comprehensive programme of macro-economic stabilization and structural economic reform."
Europe is walking on the steps of more progress, leading to the rise of living costs and the growth of its domestic markets and the emergence of a single currency rivaling the Dollar. Europe has become one of the strongest opinion opposing unions in the world.
Q1. History of your topic (i.e. product, country(ies), article, etc)? Please explain in detail your topic selection.