Unit XI-Role of International Organizations

8/7/2019 Unit XI-Role of International Organizations

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Unit XI - Role ofInternational

organizations

Day and Date:


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Unit Highlights

Concept of International Monetary System

Evolution and Demise ofBretton WoodsSystem

IMF - briefhistory, objectives, conditionality


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Text book referencechapters

International Economics by DominickSalvatore Chapter 21

International Economics by FrancisCherunilam Chapters 17 & 27


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International Monetary System

Rules, customs, instruments, facilities, and

organizations for effecting internationalpayments.

A goo

d international m

onetary systemensures adjustment, liquidity, and

confidence.


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International Monetary

SystemEvolution

The gold standard - 1880 to World War I

Wildly fluctuating FX rates 1919 to 1925

Attempt to Reestablish gold standard 1925

The Great Depression 1931

World War II - 1939

Bretton Woods System - 1947 to 1971

Managed Float 1973 onwards


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Bretton Woods System

The gold-exchange standard that operatedfrom the end ofworld war II till 1971.

A result of the meeting of representativesfrom 44 nations at Bretton Woods, NewHampshire in 1944 to decide on the kind ofinternational monetary system to adopt postworld war II

Proposed the establishment of IMF, IBRD,and ITO


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Bretton Woods Systemworking

of thegold-exchange standard US to maintain the price ofgold at $35 per

ounce be ready to exchange dollars for gold at the

price without limitation Other nations tofix the price of their currency

in terms ofdollars/gold FX rates were allowed tofluctuate by only 1%

fro

m their par values Par values to be changed only case of

fundamental disequilibrium


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Bretton Woods Systemthe

demise

Constraints on US monetary policy withregard to BOP corrections, dollar beingconferred the benefit ofprincipal internationalcurrency

Persistent US BOP deficit, with a beginningin 1970, followed by continued speculationagainst the dollar.

Major currencies were allowed tofluctuatefreely/jointly.


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International Monetary Fund

(IMF)

International institution created under the

Bretton Woods system for,Overseeing that nations followed an

agreed-upon rules ofconduct in

international trade and

financeSupport nations during BOP difficulties


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IMFObjectives

International monetary cooperation

Balanced growth of international trade

FX stability

Support corrections/equilibrium ofBOP


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IMFconditionality

The explicit commitment that members make

in return for IMF support.

Conditions range from general support tospecific financial policies


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Toconclude

International organizations like IMF play acrucial role in economic integration anddevelopment ofnations.


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You shouldnow know,

What is the role ofan international monetarysystem?

What was the Bretton Woods system? Howdid it work?

What are the responsibilities of IMF?

Documents

Unit XI-Role of International Organizations