P. 40. International institutions, p.602.
1944 in Bretton conference Keynes suggested
that a world bank would be founded that would act as a normal bank whose
customers would be nations. UK didn't agree that their exchange rate would be
predetermined, so IMF and International Bank for Reconstruction and
The International Monetary Fund (IMF), 1945-72
SDR- special drawing
right (every country's exchange rate is included)
means of exchange (between countries, not commercially)
unit of account (IMF transactions are made in SDRs)
store of value (instead of gold)
Objectives: Convertibility of all currencies + stability
in international monetary markets.
Quotas: Every country has to pay money into the pool.
According to money one gets votes
Borrowing: 450% of the quota are allowed over 3 years'
period. Conditions will be imposed.
1. Standby arrangements (most usual)-
Usually if are made available, then country
will gain automatic stability, as others trust.
2. General agreement to borrow
17 nation's pool to help themselves and
developing countries - 17 billion SDR
3. Compensatory finance scheme -
To overcome temporary difficulties, with
fewer conditions, accounts for 1/3.
4. Buffer stock facility
5. The extended fund facility - long term
6. The supplementary financing facility -
long-term to less developed countries.
The break-up of the
IMF adjustable peg system.
When IMF was set up Germany and Japan
economies were ruined. Later, when they recovered, UK and USA did not want to
devaluate and Germany to revaluate their currencies until 1967 when UK did it.
That led to crises.
USA left gold standard at 1971. There was
also inflation, speculation, the Vietnam war and the Watergate election to make
the thing worse. This withdrawal of the gold standard swept adjustable peg.
The Smithsonian agreement 1971 was an
attempt after devaluation to re-establish gold standard. Currencies were
allowed to vary 2 1/4 %, and in EC half of that (called the snake later EMS).
UK joined, but abandoned after 54 days. This agreement collapsed soon.
The oil crises in 1971 deepened the crises
The Plaza agreement and the Louvre accord
attempted to limit the fluctuations in G5 and G7 countries respectively. It was
intended to stabilise currencies.
The problem of international liquidity -
the missing of the internationally acceptable money.
There was too much unofficial liquidity
(eurocurrency) that left developed countries into huge debts that IMF could not
The World Bank (IBRD)
Purpose: Give loans for development programs (sister
organisation for IMF). Gets funds from:
1. Quotas - 10% is paid 90% is promised
2. Bonds - sells around the world
3. Income - Bank's earnings itself
It has formed The International Finance
Corporation (IFC, loans to private co.'s), The International Development
Association (IDA, long term, easier), The Multilateral Investment Guarantee
Agency (MIGA, set up by G7 to guarantee long-term private investment in
GATT (the General Agreement on Tariffs and Trade)
1. "Most favoured nation" - every country would have equal
2. Tariffs and Quotas - objective was to reduce them, last years
have been unsuccessful.
3. Trading blocks - org. like EC were allowed, but encouraged to be
outside looking. Aim to reduce the gap between rich north and poor south
OECD (the Organisation for Economic Co-operation and
Came to effect in 1947 to administer the European recovery
programme (Marshal aid). Aims:
1. To encourage growth, high employment and financial stability
2. to aid the the economic development
3. to provide
information and statistics!
The Bank for International Settlements (BIS) (1930)
Enables banks to co-ordinate trading abroad. Oldest,
self-supporting, profitable and most successful.
1. to promote
cooperation between banks
finance for nations with payment difficulties
4. provision of
the expert advice for the OECD and the EMS
the EC credit scheme
The European Bank for Reconstruction and Development
Aim is to foster transition towards open market orientated
economies and to promote private and entrepreneurial initiative of Central and
Eastern Europe. Domestic capital is not enough for reforms.