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Unformatted text preview: The Establishment of the Washington Consensus >>TIME PERIOD: (1930s) Great Depression (Late 30s - 1940s) World War Two BRETTON WOODS Meeting between Allied nations in 1944, to decide how to rebuild the world after WW2There were four main outcomes that emerged from this: 1. International Monetary Fund (IMF) the Planning mechanism 2. World Bank the Lending mechanism 3. General Agreement of Tariffs and Trade (GATT, which would later create the WTO in 1995) the Free Trade Enforcing mechanism 4. The Gold Standard pegging the US Dollar to the price of $35 to an ounce of gold to stabil- ize currency Three regulative commitments agreed upon in this meeting: 1. Instead of free aid to war torn nations, free trade was essential to stimulate their economies and rebuild their industries 2. Global money movements would be managed by globally controlled institutions 3. The whole system would be controlled and based upon the strength of the US dollar so as to avoid the devaluing of currencies that produced the financial crisis of the 1930s. The dollar would provide a fixed global monetary standard to keep the global economy stable. What to keep in mind about Bretton Woods The USA was the most stable/powerful economy coming out of WW2 because they did not have to rebuild their industries and infrastructure. Thus the commitment to free trade greatly benefited the USA because they were the major producer of exports at the time and the whole world needed their goods! Also, the IMF voting system was based on how much money each country was investing the more money a country funnels into the IMF, the greater number of votes they hold. The USA held 80% of the Worlds gold at the end of WW2, and this financial dominance allowed them domin- ance over the decision-making process within the IMF. >>TIME PERIOD: 1950s 1960s: Managed financial exchange rates based on the dollar kept the worlds economies fairly stable, and as Europe rebuilt the USA remained the worlds primary producer, exporting much more than it imported. This trade surplus kept the dollar in high demand and therefore stable. By the late 1960s, however, the European economies and infrastructure had been thoroughly developed and started to produce goods that were competitive on the global market. This cre- ated a surplus of commodities and often times the foreign-produced goods were cheaper than the American made ones, leading American consumers to buy these foreign goods, thus cre- ating a trade deficit for the USA. >>TIME PERIOD: Late 1960s 1970s: The United States massive spending both domestically and abroad in the 1960s (ie. the Viet- nam war and the demands on the welfare state from the civil rights movement) led the USA to print more dollars than they had gold to back up in order to fund their endeavors. However this increasing supply of dollars greatly diminished the dollars purchasing power (increased inflation), and by 1970 the dollar was no longer convertible to the $35 an ounce of gold...
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This note was uploaded on 06/03/2010 for the course BIOL BIO 101 taught by Professor Drumheller during the Spring '10 term at University of Washington.
- Spring '10
- The Land