The international monetary and finance structure - Essay Example

It was with the end of the war that developed nations came up with a new system, which sought a free flow of capital, stable exchange rates, and open trade. These three principles were fundamental in globalization and liberalization of the global economy. There were a number of concepts, which underpinned this new liberal economy. Liberal economics were premised on the recognition that there were inherent differences in the endowment of resources for different countries (Balaam & Veseth 127).

Therefore, international wealth could only be maximized if countries participated in global trade. In addition, national currencies were to be sold and bought in a system of free markets, in which floating exchange rates enabled the markets to determine a currency’s value in relation to another. This system would ensure market equilibrium and the IMF was tasked with stabilizing rates of exchange with the IMF originally founded on the fixed rate system. However, this financial system failed to keep up with the dynamism of various national economies, which meant the fixed exchange-rate system changed to a more flexible system and less capital transfer control.

Under these conditions, the value of national currency was determined by interactions between supply and demand present in foreign exchange markets (Balaam & Veseth 127). . These include the Gold Standard until WWI, the Bretton Woods system for fixed-exchange rates, prior to the end of WWII, and the floating or flexible regime of exchange rates (Balaam & Veseth 132). Economic liberalism that characterizes today’s international monetary and financial structures has been supported by; the WTO, the IMF, and the World Bank.

The World Bank was created with the aim of stimulating economies following the destruction of WWII on Europe (Balaam & Veseth 133). However, the institution’s emphasis shifted to development away from reconstruction as it began to generate capital funds from contributions made by its member states, as well as that made from financial market borrowing. Currently, most of the funding from this institution is used in the development of infrastructure. On the other hand, the IMF was formed in order to stabilize economies and exchange rates.

Initially, the IMF was established as a fixed exchange-rates system. However, the system went out of use after an announcement by the US that they would stop guaranteeing the system. Finally, it formalized the currently in use floating exchange-rates system. Finally, the WTO, formerly the GATT, was instituted for the management of trade. The initial GATT was formed based on support for liberalization of trade, protection of home markets exclusively through tariffs, national treatment for MNCs, and non-discrimination in trade (Balaam & Veseth 134).

It established multi-lateral negotiations among nations that had similar interests at hand, before being extended to all participants of the GATT. Much of its work was done over 8 rounds of negotiations, which progressively cut back on tariffs and addressed arising issues like copyrights and