Globalisation Tutorial One

Structuring the Global
Economy:
The Bretton Woods
23ECON08C Economic Globalisation
Tutorial One
Prepared by Nooran Ibrahim
Tutorial • Major Global Events.
• Motives Behind the Bretton Woods Conference.
Outline • The Bretton Woods Conference and Institutions.
• The Bretton Woods Five Key Elements.
• The Effect of the Bretton Woods on the Global
Economy.
• The end of the Bretton Woods (assignment).
Major Global Events:
- WWI (1914 –1918)
- The Great Depression (1929–1939)
- WWII (1939 – 1945)
- The Bretton Woods system, which was established in 1944 as a result of the Bretton
Woods Conference, held in New Hampshire, United States.
- The Cold War (1947 -1991).
Major Global Events:
- All of these events had a negative impact on the major economies of the world
(European economies and East Asians) except for the USA (when referring to the wars’
impacts not the depression).
- During the years of the depression in the 1930s, there was an autarky movement by
some major economies like Germany and Italy (the turn inward to achieve economic self
– sufficiency).
- On the other hand, during since the midst of WWII USA and Britain were planning for a
more open International economy, while the European major economies were returning
back to autarky.
Motives Behind the Bretton Woods Conference:
1- The major global fear of autarky was the recurrence of the interwar period experiences, when
exchange controls and trade protectionism contributed to the 1930s Great Depression and World War II,
especially because of the difficulties major economies would have in absorbing the massive manpower
created by the demobilization of the military when the war ended.
2- The fear of restoration of the barriers to trade and the free flow of money that had become
commonplace prior to WW II.
3- The necessity of creating conditions needed for financial stability and integration around the globe.
- A key factor in the Depression was thought to be a lack of cooperation among nation - states. That lack
of cooperation was associated with high tariffs and other import restrictions and protectionist practices,
as well as the propensity of governments to devalue their currencies in order to gain an edge in global
trade over other countries. The latter also made exchange rate wars among the nations involved more
likely.
The Bretton Woods Conference and Institutions:
• I n July 1944, delegates from 44 countries joined the Bretton Woods Conference, and within
22 days they endorsed a framework for international economic cooperation after World
War II.
• As a result of the conference, two international economic organizations:
1- The International Monetary Fund (IMF).
2- The International Bank for Reconstruction and Development (IBRD) or World Bank.
3- In 1948 the General Agreement on Tariffs and Trade (GATT) became the main global trade
organization. These organizations were part of a complex institutional framework to help
manage the postwar global economy.
The Bretton Woods Conference and Institutions:
• The Bretton Woods Institutions—the IMF and World Bank—have an important role to play
in making globalization work better. They were created in 1944 to help restore and sustain
the benefits of global integration, by promoting international economic cooperation.
The Bretton Woods Five Key Elements:
1) Each participating state would establish a “par

2) The official monetary authority in each country (a
value” for its currency expressed in terms of gold or
central bank or its equivalent) would agree to exchange its
(equivalently) in terms of the gold value of the US
own currency for those of other countries at the
dollar as of July 1944. For example, the US pegged
established exchange rates, plus or minus a one - percent
its currency at $35 per ounce of gold, while, to take
margin.” This made international trade possible at or near
one example, the figure for Nicaragua was 175
the exchange rate for the currencies of the countries
cordobas per ounce. This meant that the exchange
involved without the need for any outside intervention.
rate between the two currencies was five cordobas
for one dollar.
The Bretton Woods Five Key Elements:
5) Finally, the entire system was based on

3) The International Monetary Fund (IMF) was the US dollar (at the end of WW II the US
created to establish, stabilize, and oversee exchange 4) The member states had about three - fourths of the world ’ s
rates. Forty states became IMF members in 1946 agreed to eliminate, at gold supply and accounted for over one -
and were required to deposit some of their gold least eventually, all fifth of world exports). The US agreed to
reserves with the IMF. The IMF was empowered to restrictions on the use make the dollar convertible into other
approve the par values of currencies and member of its currency for currencies or gold at the fixed par value.
states could not change that value by more than 10 international trade. The dollar became, in effect, a global
percent. If a currency was destabilized, the IMF was currency. Of course, as the Bretton Woods
prepared to lend member states the money needed system came into existence and had a
to stabilize their currency. chance to develop, it changed dramatically
over time.
The Effect of the Bretton Woods on the Global
Economy:
In terms of global trade , a key was the idea of the “ unconditional most - favored - nation ”
which “ required governments to offer the same trade concessions [reductions in trade
barriers, non - discrimination against a nation ’ s products] to all. Restrictions on international
trade were reduced over the years through various meetings ( “ rounds ” ) under the auspices
of GATT (General Agreement on Tariffs and Trade) and later the WTO.
In terms of the monetary order , it was the IMF that took center stage. The goal was to provide
security, as well as flexibility, to the monetary order. What emerged between 1958 and 1971 was a
system in which the US could not change the value of its dollar, while all other countries could, but
as infrequently as possible. This made exchange rates stable enough to encourage international
trade and investment which otherwise would have been discouraged by dramatic fluctuations in
rates.
The Effect of the Bretton Woods on the Global
Economy:
In terms of global investment , a key role was envisioned for the World Bank, but massive US aid
through the Marshall Plan, and rapid European post - war recovery, made its work in that period
of much less significance than had been anticipated. A key development in terms of investment
involved MNCs, especially American - based fi rms in fi elds like automobiles and computers,
constructing their own plants and/or investing in indigenous companies in other countries. This
kind of investment took center stage because the industries involved required very large, often
global, organizations in order to function effectively. In addition, this kind of investment made it
possible to get around trade barriers by opening plants within the countries with such barriers.
The global openness encouraged by Bretton Woods also contributed to the emergence or
expansion of social welfare programs, indeed the welfare state, in many countries. Welfare
states sought to deal with various problems – recession, layoffs, reductions in wages, and
bankruptcies of uncompetitive fi rms. The creation of a social safety net within a given country
served to protect it and its citizens from these problems, at least to some degree. In the process,
it gave a nation and its entrepreneurs the cover they needed to be actively involved in the global
marketplace.
Post-tutorial Assignment:
• Read from the book Chapter 3 “the reasons behind the end of the
Bretton woods.” In addition, make a small research about the reasons
of ending the Bretton woods. From your own understanding, prepare
a one ppt slide that includes smart art explaining a summary of the
reasons and upload it to the below link before next tutorial:
Post-tutorial One Assignment

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Structuring the Global

1) Each participating state would establish a “par

5) Finally, the entire system was based on

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