International Monetary Fund
- Founded at Bretton Woods in 1945
- Originally devised to maintain the Bretton Woods system https://www.youtube.com/channel/UCIYhr3JsLYfKkCM7-W5B6DA
- Special Drawing Rights https://www.youtube.com/watch?v=Dlvtd3kMCqc
- Conditional Lending
- Founded at Bretton Woods in 1945, the IMF’s primary role was to maintain the Bretton Woods system of fixed exchange rates relative to the US dollar which itself was on the Gold Standard. Countries pegged their currencies to the dollar by using their foreign or domestic currency reserves to increase the supply or demand for their currency in the foreign exchange market, bringing the currency back to the peg. However, countries in crisis had a hard time maintaining the peg, and it is foreseeable that a country could come under so much pressure that they ran out of foreign currency reserves and could no longer maintain the value of their currency. The IMF then would provide loans to these countries to stabilize their currencies. Examples of this happened often in Europe under the Bretton Woods system and a later system of exchange rate fixation called the Snake, especially given a dollar with a substantial downward trend and a Deutschemark with an upward trend in value relative to other currencies. However, when the Bretton Woods system collapsed under Nixon, the IMF expanded its duties to the present day system. However, its response to the Asian Financial Crisis in the late ‘90s indicates that it still has an important role in maintaining the fixed interest rate regimes that exist in the world. We are now going to watch two videos. The first is about what the IMF currently does and the second is about SDRs.
- So the IMF can lend money to countries in crisis as long as these countries meet certain requirements regarding interest rates and government spending.
World Bank
- Established in Bretton Woods
- Providing loans to alleviate poverty
- https://www.youtube.com/watch?v=F59fF-xu-bY
- Watch video
World Trade Organization
- GATT (1948)
- WTO (1995)
- Reduce tariffs worldwide
- “Most favored nation”
- GATT was a free trade agreement that went into effect in 1948. It successfully reduced tariffs from 22% to 5% in the developed world and further reduced tariffs in developing nations.
- The World Trade Organization was established in the 1994 Uruguay Round Agreements and went into effect the following year.
- GATT and now the WTO work through the most favored nation concept which says that is a country offers another country a better trade deal, it must offer all countries in the WTO this same opportunity for freer trade with the exception of regional trade agreements.
- The World Trade Organization also settles disputes between nations and can recommend to countries possible recourses in the event of a dispute.
Bank for International Settlements
- Founded in 1930 to help Germany with WW1 reparations
- Grouping of central banks
- Traditional European focus, hosting discussions about European integration
- The Bank for International Settlements is a group of Central Banks historically located in Europe. The Bank originally was supposed to help Germany with WW1 reparations. After the war, it helped facilitate monetary policy coordination within Europe in accords with both Bretton Woods and the Snake, the post-Nixon fixed exchange rate regime in Europe.
G7 and G20
- Groups of economically powerful nations that negotiate with each other in summits to coordinate economic policy to better the world economy.
- G7 (formerly the G8 until Russia was removed for annexing Crimea) is industrialized nations (plus the EU), while the G20 includes large developing economies such as China.
NAFTA
- 1994 (Clinton-era) regional trade agreement between Mexico, Canada, and the US
- Provisions: eliminate US-Mexico tariffs (a previous trade deal with Canada already eliminated most US-Canadian tariffs); protect intellectual property rights
- Impact: some manufacturing jobs were lost but most Americans benefit greatly. Mexicans benefit significantly.
Mercosur and Andean Community
- Mercosur: Established 1991, customs union, free movement of goods people, and capital (single market)
- Andean Community: Established 1969, customs union
Asean
- Interregional governmental organization founded in 1967
- ASEAN Free Trade Area (1992) seeks to lower intraregional tariffs to zero.
- Seeks to establish an Asean Economic Community Single Market (with the four freedoms) by 2020
- ASEAN is first and foremost a political organization of these countries as they seek to combine foreign policy stances to, through collective strength, become a powerful player in Asia. The intertwined economic system is therefore the product of what is primarily a foreign policy concern.
- A regional trade agreement was established in 1992 and seeks to lower tariffs within the region to zero. Not all countries in ASEAN have reached the zero-tariff goal yet.
- ASEAN countries hope to establish a Single Market or Common Market which entails the free movement of people, capital, goods, and services, the so-called four freedoms.
- ASEAN is thinking about establishing a monetary union or common currency, but this does not really make much sense since only a fifth of member state trade is with other member countries, making exchange rates with countries like India, China, Japan, and the United States far more important than the exchange rates that these countries have with each other. As such, they would be ceding monetary policy sovereignty for no actual trade benefits.
European Union
- European Coal and Steel Communities (1951): shared production of steel and coal
- Treaty of Rome (1957): Established the customs union known as the European Economic Community which sought to move towards a common market
- Schengen Agreement (1985): Abolished internal border checks
- Single Europe Act (1987): Create a single market by 1992.
- Maastricht Treaty (1993): Established the EU and the Monetary Union
- Circulation of the Euro (2002)