P. 40. International institutions, p.602.

Introduction

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 Development(IBRD).

The International Monetary Fund (IMF), 1945-72

          SDR- special drawing right (every country's exchange rate is included)

-a-   A means of exchange (between countries, not commercially)

-b-   A unit of account (IMF transactions are made in SDRs)

-c-   A 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 assistance

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 even further.

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 deal with.

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 developing countries).

GATT (the General Agreement on Tariffs and Trade)

1.    "Most favoured nation" - every country would have equal rights.

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 countries.

OECD (the Organisation for Economic Co-operation and Development (1947)

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

2.    organising finance for nations with payment difficulties

3.    monitoring eurocurrency markets

4.    provision of the expert advice for the OECD and the EMS

5.    administrating the EC credit scheme

The European Bank for Reconstruction and Development (EBRD)(04.1991)

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.