Essays on Mm202 International Business Thesis

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The Bretton Woods agreementWhat were the foundations of the 1944 Bretton Woods Agreements? This query has fascinated many economists because of the influence these Agreements consequently had, and continue to have, on the development of the post-war global economic system. The Agreements were particularly significant in outlining a novel ‘embedded liberal’ idea that sought a central way between classical global liberalism and the new more domineering economic ideas that had become powerful across the world during the 1930s (Shamah, 2003). While embracing a many-sided financial order of steady currencies and current account convertibility, the Bretton Woods planners supplemented market mechanisms by putting up publicly-controlled global financial institutions to offer short-term balance of payments sustain and long-term investment capital (Andrews, 2008).

Their approval of capital controls and exchange rate alteration also provided greater policy sovereignty for governments to follow more interventionist domestic policies. For a period of three weeks, between 1 and 22nd of July 1944, 730 delegates from the 44 allied nations gathered at the Mount Washington hotel in Bretton Woods to establish a system that could bring about reconstruction to the international monetary system.

The agreement that was to be made was a comprehensive agreement referred to as the Bretton Woods agreement, a system that would peg the currencies of the states to the US dollar (McEachern, 2009). The agreement was centered on the financial relations among the key industrial states in the mid-20th century. The results of the conference saw the institution of the international bank for reconstruction and development and the international monetary fund. The international bank for reconstruction is currently part of the World Bank group, but IMF still remains.

The agreement gave the IMF power to intervene in the event that two states differed on current account transactions. The most prominent feature of the Bretton woods agreement was an obligation for all countries to adopt a monetary policy that fixed the foreign exchange rate in relation to the United States dollar. Apparently, in 1944, the United States had control of well over 50% of the worlds manufacturing capacity (Kim, 2011). Additionally, the country had the most of the country’s gold. It is important to note that gold has been set as the economic standard after the World War I, but had failed as the central factor of the international monetary system.

The US dollar was deemed the most effective currency against which all other currencies could be pegged as it was relatively stable at the time. Many economists have tied the use of the US currency to the fact that the United States was not actively involved in the second armed conflict of the world. For most of the time, the United States remained neutral. The second most important feature of the agreement was the formation of the international monetary fund, commonly referred to as just the IMF, and the international bank for reconstruction and development.

The international bank for reconstruction and development, now part of the World Bank group was instituted for the sole purpose of ensuring the countries that had been destroyed by the war get back on their feet and start over again by fixing the faults that the war had caused in their economies. It is particularly important to mention that the economies of most nations were hurt by the war as most funds were dedicated to the war and even the human resources committed to the conflict diverting the countries’ reconstruction energies away.

The international bank for reconstruction was aimed at offering loans to the devastated nations, so that they could afford to strengthen their currencies and economies without much hassle.

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