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    Chapter 2: The Global Economy

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    The document provides an overview of the global economic system that emerged after World War II. It discusses the Bretton Woods Conference which established key international economic organizations like the IMF and World Bank to promote global monetary cooperation and development assistance. The IMF focused on managing exchange rates between countries until the 1970s. The World Bank provided long-term loans to less developed countries. However, these institutions have been criticized for marginalizing the interests of developing nations and their policies have had mixed economic impacts.

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    Chapter 2: The Global Economy

    Uploaded by

    xxpinkywitchxx
    34 views9 pages
    The document provides an overview of the global economic system that emerged after World War II. It discusses the Bretton Woods Conference which established key international economic organizations like the IMF and World Bank to promote global monetary cooperation and development assistance. The IMF focused on managing exchange rates between countries until the 1970s. The World Bank provided long-term loans to less developed countries. However, these institutions have been criticized for marginalizing the interests of developing nations and their policies have had mixed economic impacts.

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    Global Economy

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    The document provides an overview of the global economic system that emerged after World War II. It discusses the Bretton Woods Conference which established key international economic organizations like the IMF and World Bank to promote global monetary cooperation and development assistance. The IMF focused on managing exchange rates between countries until the 1970s. The World Bank provided long-term loans to less developed countries. However, these institutions have been criticized for marginalizing the interests of developing nations and their policies have had mixed economic impacts.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    34 views9 pages

    Chapter 2: The Global Economy

    Uploaded by

    xxpinkywitchxx
    The document provides an overview of the global economic system that emerged after World War II. It discusses the Bretton Woods Conference which established key international economic organizations like the IMF and World Bank to promote global monetary cooperation and development assistance. The IMF focused on managing exchange rates between countries until the 1970s. The World Bank provided long-term loans to less developed countries. However, these institutions have been criticized for marginalizing the interests of developing nations and their policies have had mixed economic impacts.

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    of 9

    CHAPTER 2: THE GLOBAL ECONOMY

    GLOBALIZATION
    - Involves the broadening and deepening of
    interdependencies among people and states
    - Leads to an extension of geographic linkages,
    encompassing societies and states and deepens
    interaction among them such that policies and
    events of one state also affect distant ones
    - Multidimensional phenomenon comprised of
    political, economic, and cultural features.

    ECONOMIC GLOBALIZATION
    - A process making the world economy an
    “organic system” by extending transnational
    economic processes and economic relations to
    more and more countries and by deepening the
    economic interdependencies among them
    (SZENTES)
    - BENCZES emphasizes that interpretation of the
    current trends in the world economy must be
    understood in the global context of an
    integrated world economy
    - Non-state actors such as international
    organizations, non-governmental
    organizations, and multinational or
    transnational corporations play significant
    roles in the international economic processes.

    THE POST-WORLD WAR II ECONOMIC SYSTEM

    Bretton Woods Conference


    - July 1994
    - United Nations Monetary and Financial
    Conference
    - Marked the birth of a new international
    economic framework
    - Delegates from 44 countries convened in
    Bretton Woods, New Hampshire and United
    States
    - Creation of three international economic
    organizations: International Monetary Fund
    (IMF), World Bank (International Bank for
    Reconstruction and Development) and General
    Agreement on Tariffs and Trade (GATT)
    - GATT created in 1977 after the Bretton Woods
    Conference
    - REASON FOR CREATION: To address the
    problems that occurred during the interwar
    period, trade protectionism and exchange
    controls, which led to the Great Depression and
    World War II
    - Bretton Woods Institutions known as keystone
    international economic organizations because
    of their central role in trade, development, and
    monetary relations.

    INTERNATIONAL MONETARY FUND (IMF)


    - PRIMARY PURPOSE: To promote global
    monetary cooperation and international
    financial stability
    - 1945 – designed to monitor the system of
    pegged or fixed exchanges rates.
    - OFFICIAL EXCHANGE RATES OF CURRENCIES –
    gold and US Dollar
    REASON: To prevent the trade wars that
    occurred during the interwar period due
    to competitive devaluations of states of
    their currencies
    - Balance-of-payment deficit occurs when a
    country spends more than it takes in.
    - ROLE: To provide short-term loans to prevent
    devaluation and retain the state’s fixed
    exchange rate in instances of the temporary
    balance of payment deficits
    - REASON FOR THE ROLE TO CHANGED: The
    fixed-exchange-rate system collapsed and was
    replaced by floating exchange rates in 1971
    NOTE: It still had the role of providing
    liquidity but has more focus on countries
    to major currencies instead of countries
    supplying them
    - Institution based on quotas which determined
    the maximum amount of financial resources
    that a state is obliged to provide to the fund
    - Quota of state reflects their relative position in
    the global economy and determines the voting
    power of states in IMF decisions
    - Dominated by the West
    - Criticized for marginalizing the South and fails
    to include emerging economies in its decision
    making

    Global Financial Crisis of 2007 – 2009


    - Prompted the IMF to undergo a reform process
    consisting of two elements:
    1. IMF resource expansion to enhance
    capacity for financial crisis management
    2. Increase in quota and voting power of
    emerging economies within the institution

    2010 Reform Structure


    - Doubling of Quota
    - Shifting of quota shares
    - Preserved quota and voting shares of poorest
    member states
    - OUTCOME:
    - Trade-off between money and power
    - Has not led to the long-expected reform
    and strengthening of the IMF

    Agreement between the BRIC


    - Brazil, Russia, India and China
    - Contribute to the Fund’s resources in exchange
    to quota and governance reforms about the
    redistribution of the quota and Executive board
    seats from the West to the South
    WORLD BANK
    - ROLE: To grant long-term loans for the
    economic development of less developed
    countries and the reconstruction of war-torn
    countries in Europe
    - TWO INSTUTIONS:
    1. International Bank for Reconstruction and
    Develeopment (IBRD) – provides lending to
    middle-income and creditworthy low-
    income countries
    2. International Development Association
    (IDA) – grants credit and loans to lowest
    income countries.
    - Only a component of the World Bank Group
    which is comprised of three other institutions:
    International Finance Corporation (IFC),
    Multilateral Investments Guarantee Agency
    (MIGA), and International Centre for
    Settlement of Investment Disputes.
    - RENEWED ROLE: To reduce extreme poverty
    while addressing the imperfections of global
    capital markets continues to be secondary
    importance.
    - Impact on the growth outcomes has been
    contested

    IMPACTS OF THE WORLD BANK


    - Severe macroeconomic distortions suffered by
    loan recipients (Easterly)
    - No statistical evidence of per capita growth
    improving from increased structural adjustment
    lending (Easterly)
    - Bank’s structural adjustment resulted in
    adverse effects on children in Sub-Saharan
    Africa. (Shandra)
    - Have detrimental effects on child and maternal
    health in the developing world
    - Policy reforms undermine access to health care
    - Adversely impact on income and food
    availability
    GENERAL AGREEMENT ON TARIFFS AND TRADE
    (GATT)
    - PURPOSE OF GATT: To avoid trade wars by
    raising protectionist barriers as witnessed
    during the interwar period
    - REASON OF CREATION:
    - Refusal of the US to sign the Havana
    Charter that would create an International
    Trade Organization (ITO) at par with that of
    the IMF and GATT
    - Agricultural sector in the US feared for
    losses that may be brought by the ITO
    - Pressure in the US Congress
    - EFFECT:
    - Unable to address the expansion of trade
    in services, investment, and intellectual
    property
    - Incapable of providing a strong and
    efficient system for dispute settlement

    WORLD TRADE ORGANIZATION (WTO)


    - 1995
    - Managed to address the issue that GATT fails to
    do so.
    - Establishment of global economic order was
    heavily influenced by Western developed
    countries
    - South, comprised of less developed economies
    and were marginalized
    - Soviet Union refused to participate and with
    attempts to create an alternative economic
    framework
    - Less developed economies became integrated
    into the liberal economic order at the end of
    the twentieth century.

    INTERNATIONAL MONETARY SYSTEM


    - Defined as a set of general rules, legal norms,
    instruments, and institutions shaping payment
    conditions in foreign trade
    - Brought by the multilateral international
    agreements of trading participants, facilitated
    by international financial organizations

    Gold Standard
    - Adopted by England in 1816 – first country to
    industrialize
    - First international monetary system
    - Later joined by European countries and United
    States
    - Functioned as a fixed exchange rate regime
    where countries determined the gold content
    of their national currencies which would define
    the fixed exchange rates.
    - Primary features of the gold standard: (1)
    Unlimited convertibility of currencies into gold,
    (2) High stability facilitated by trade among
    countries that eliminate exchange rate
    fluctuations and risks.
    - The system maintained the trade balance
    automatically
    - Deficit in balance-of-payments due to gold
    reserve outflows result in fewer money supply
    in the domestic market, causing a decline in
    domestic prices
    - Beneficial to exporting cheaper goods but not
    on imports of higher priced goods
    - Non-inflationary because the issuance of
    money is dependent on a state’s gold resources
    - WEAKNESS: Price fluctuation

    World War I
    - Marked the dissolution of the classical gold
    standard
    - Shift to paper money not tied to gold reserves
    and whose exchange rate was determined by
    the supply and demand in the foreign exchange
    market
    - Military spendings could not be backed up by
    gold reserves anymore

    1922
    - Attempt to return to the modified gold
    standard
    - Conference in Genoa

    Gold Bullion Standard


    - New international monetary system
    - Bank notes were exchangeable for gold bullion
    of fixed weight, therefore involving only the
    exchange of large sums of money
    - System failed to:
    - Facilitate the free convertibility of
    currencies to gold and it collapsed
    - It collapsed in 1931 with the outbreak of
    Great Depression in the 1930s

    Great Crash or the Wall Street Crash of 1929


    - First symptoms of the economic crisis
    - Stock market prices delivered a wave of
    bankruptcies
    - Decrease in trade and population
    - Unemployment in the United States

    1930s interwar period


    - Increase intensity beggar-thy-neigbor policies,
    trade protectionism, competitive devaluation,
    and rigid capital controls among the states.

    Bretton Woods Conference of 1994


    - 44 countries
    - New international system that would prevent
    the chaos that occurred during the interwar
    period

    Bretton Woods System


    - Also known as the dollar-gold standard or gold
    exchange standard
    - US Dollar as the only convertible currency that
    is considered to be as good as gold
    - US committed to purchase and sold US$35 an
    ounce without restrictions
    - 1959 – 1968
    - Collapsed in 1973

    Factors that contribute to the collapse of the Bretton


    Woods System
    - Growth of private and official private liquid
    dollar claims of foreigners
    - Reduction in official gold holdings
    - Persistent balance-of-payments

    1960s and 1970s


    - Series of changes were introduced to maintain
    the operations of the Bretton Woods system
    - SOLUTIONS:
    - Formation of Gold Pool
    - Special Drawing Rights to expand
    resources and means for payment

    Shift from pegged-system to a floating one


    - IMF allows flexibility among member states to
    determine their exchange rates or tie them to
    major currencies such as the dollar or the SDR
    - IMF allows a managed float system where
    central banks are allowed to intervene to
    address the fluctuations in the exchange rate
    by buying and selling currencies

    NOTE: Currencies are not allowed to manipulate their


    currencies to achieve short-term gains at the expense
    of other economies.

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