Describe the period of Globalization in international economic management - Essay Example

International Monetary System was formed to overcome the imbalances in economies arising from globalization. The new system took into account the international trade imbalances, investment, finance, and exchange markets. The international monetary system also took into account the imbalances in international payments which as a result of globalization were settled through financing, changing domestic economic policies, rationing exchange controls, and changes in currency exchange rate. The management of International Monetary System was difficult because it needed full international cooperation which was politically impossible.

For the management of the system, the economies agreed on using a set of policies. For instance, mix of adjustment mechanisms were developed such as floating exchange rates or linking currencies to dollar under fixed exchange rate. Many political and economic crises arose in the midst of globalization. Reformation of International Monetary System was required. Many countries relaxed controls, opened domestic markets and removed regulatory barriers. As a result, financial markets became integrated into one global market influencing floating exchange rate system making it the central part of the new monetary system.

Such an exchange rate could provide effective account adjustments by increasing exports and lowering imports and thus creating a trade balance. Many new treaties and pacts were made within countries as well as amongst others. For instance, the United States-Japan Enhanced Initiative on Deregulation and Competition Policy for Framework was signed to reduce trade deficits between US and Japan. The European Union introduced a single currency known as Euro under the Economic and Monetary Union had significant impact on the currency exchange transactions.

In addition, almost all countries set up private banks, made the more central banks more independent, liberalized their financial systems and also joined the IMF