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The Rise of the Global Economy following WWII - Research Paper Example

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The Rise of the Global Economy following WWII The Bretton Woods system was formed to manage financial and commercial relations of the nations, which spearheaded industrialization in the mid-20th century. It is the first system to establish a fully bargained monetary system with the aim of presiding over monetary issues of independent states…
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Download file to see previous pages This calls for a system that can stabilize the economy. Following the need to have a control system, the 44 nations that convened in Breton woods charted the way forward. A British economist by the name John Maynard stressed the significance of rule based regimes that can stabilize the international business. His suggestions were accepted in Briton wood fixed exchange rates. This article discusses the Breton wood system, which was established in 1944 at Breton wood conference. It begins with the analysis of the economic situation after the First World War, and afterwards discusses the significance of creating a supranational organization that assist in trade flows. In addition, the most significant adjustment resulting from the establishment of this system is explained. The system started to develop immediately after the Second World War, when several countries wanted to go back to the old financial security system that existed before the war. This was the gold system. It was required that every country that took part in the international trade should have their money backed by reserves of gold and foreign currencies. However, many mistakes during implementation of the gold standard resulted in the collapsing of financial and economic relations between countries. To curb these problems, all countries tried to raise the competitiveness of their export so as to decrease the payment of deficit through deflation of the currency. However, this worsened the situation and resulted in international deflation competition that brought about mass unemployment, bankruptcy of companies, failing of credit organizations, and high inflation in affected countries. As such, a stabilization modality was necessary (O'Hara, 1994). These issues occasioned several monetary conferences. During the Second World War, there was a need to set up a system that could stabilize the currency, and at the same time avoid the mistakes that were made in the past. During the conferences, it was planned to put in place innovative monetary systems and an independent institution that could oversee all the actions that were taken. The main negotiations took place in Breton in 1944. Forty four countries attended the conference to find a solution to the past problems. International Monetary Fund and World Bank were created in the process of these negotiations. There was also an agreement to have a system of fixed exchange rates, with United States dollar as the main currency. The plan on how the system could operate was put forward by two notable economist of that time, that is, John Maynard (British economist) and Harry White (an American minister of state in treasury). Harry called for the establishment of bank of recovery (World Bank) and International Stabilization Fund. On the other hand, Maynard was calling for the same, but he differed with Harry because he wanted the International Monetary Fund to create funds and have powers to take any action on a larger scale. When there was an imbalance in payment, Maynard wanted both the creditors and debtors to change their policies - he wanted nations with surplus payment to increase their imports from nations with deficit, hence creating foreign trade equilibrium. However, white saw the problem of imbalance as concerning the nation that has a deficit. In the conference, the value of US dollar was defined in terms of gold and all ...Download file to see next pagesRead More
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