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Tracing the Post-WWII Economic History: Its Effects to Oil Price Instability - Essay Example

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The purpose of this paper is to discuss some international economic events after the World War II that are relevant to the abrupt change in oil price. These events have contributed a lot to the present global oil price hike, as what everybody knows that prices have skyrocketed since the post World War II period.

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Tracing the Post-WWII Economic History: Its Effects to Oil Price Instability
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Oil price is very sensitive to events that rocked the global community; because of these events, oil price has become more of a roller coaster ride. It goes up most of the times and goes down at some points.

America has been a major player in the international market. Most of the commodities, like oil, are traded in terms of dollar. There is a direct relation between US dollar and oil price. Following the World War II, the prices of oil increased to $3/barrel in 1960s from $2.50/barrel in 1948 (Reisdorf, 2008). The current oil price is around $83 per barrel as of June 18, 2012 (Fox, 2012). Although it has been constantly decreasing since April of this year, the price is already twenty-seven times the price of that in 1960s. This issue may not be interesting to some since they are only up to what is really happening now.

Though the global situation in the previous decades, specifically after the World War II had been stable, there are these events that turned the tables and rocked the value of oil barrel. The purpose of this paper is to discuss some international economic events after the World War II that are relevant to the abrupt change in oil price. These events have contributed a lot to the present global oil price hike, as what everybody knows that prices have skyrocketed since the post World War II period. Moreover, this will also tackle the probable causes of the current high price and its effects to the global economy. There may be numbers of identified causes and consequences, however, this paper will only cover those which are of remarkable contribution and worldwide effects brought about by this oil crisis. Bretton Woods System According to Dammasch (2007), there were 44 countries that joined the conference held in Bretton Woods, New Hampshire in 1944 with the purpose of establishing a basis in international monetary exchange among countries and ensuring their financial stability, as well. Developing the Bretton Woods system was lead by John Maynard Keynes, a well-known British economist and Harry Dexter White, a US Treasury official. Under this system, all the member nations set their currencies to US dollar, which pegged itself to gold at fixed rate. It established two international financial institutions: the International Bank for Reconstruction and Development (also referred as the World Bank) and the International Monetary Fund (IMF). IBRD or the World Bank is responsible in providing loan assistance to developing countries to reduce poverty and to boost their economic status (Carbaugh, 2010). On the other hand, the IMF, as attested by Stephey (2008), was created to oversee the exchange rates and to help its member countries with negative trade balance. In addition, it is also capable of lending financial assistance to members with problems in “balance-of-payments.” However, there was still a limited access to fund resources (Mason & Asher, 1973). For a country to be a member of IMF, subscription should be made in 75% in its own currency while the remaining 25% in gold (Coffey & Riley, 2006). Member countries pegged their currencies at fixed rates but can be changed when there is a “fundamental disequilibrium” with the approval of the Fund. These currencies were set in terms of US dollar, which was also set in terms of gold. Gold standard, in the context of Butcher (2011), was considered as a widespread monetary policy all over the world wherein currencies are associated to the gold price ensuring the value of one currency against the other. According to Bordo (1999), England was the first to formally put it ...Download file to see next pagesRead More
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