lec_11_110B - Economics110B WorldEconomic HistoryII...

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    Economics 110B  World Economic  History II Spring 2009 University of California, Davis Lecture 11: The Bretton Woods System 
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    Today’s Program What are the Bretton Woods system? World Bank (IBRD), International Monetary Fund,  ITO now WTO The Intellectual Origins of the Bretton Woods Institutions The International Economic Environment Post World War II The US and UK shape the Bretton Woods institutions Weaknesses: The United States at the center of Bretton Woods Balance of Payments, Capital Controls and Capital Flows The Demise of Bretton Woods and the ‘gold standard’
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    Readings If you want a reading I suggest chapter 4 of Barry  Eichengreen’s  Globalizaing Capital.  This lecture  will follow that chapter closely.
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    Why do we care about Bretton Woods? A conscious coordinated attempt to regain the  international stability of the 19 th  century and  achieve prosperity. Today we have a world with China and the US  which is called Bretton Woods II Many activists cite the IMF and World Bank as  the reason countries stay poor. To understand that international economic  agreements may be likely to last when other geo- political commitments are supportive.
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    Economics you need to know Balance of payments identities How deficits (fiscal and private) lead to current account  deficits  Balance of payments deficit = loss of reserves or a capital  inflow (i.e. a rise in debt) A surplus is a gain in reserves or a  capital outflow (country adds to its international assets) Why trade deficit countries need loans. What the exchange rate is The issues of the Trilemma
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    Interwar period: Review There was a lost faith in the market Destabilizing and speculative capital flows were  blamed for instability Exchange rate depreciations had been competitive  and beggar-thy-neighbor Cooperation was lacking in the international  system Debtors had to ‘bear the burden’ of adjustment
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    Planning for the Post-War Britain and the US had already been planning as  of 1941 Post-War Agreement hammered out by 1943  ratified in Bretton Woods, New Hampshire at the  Mount Washington Resort 1944. BW comes into  full operation in the late 1950s.
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    The Goals of US-UK Compromise for  International Stabilization Fund Balance of international integration and national  policy independence Provide more cooperation Ease adjustment of the balance of payments  deficits (to avoid deflationary policies) Avoid destabilizing capital flows International watchdog to sanction countries that  destabilized the system with depreciations
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    How the System differed from the Gold  Exchange Standard
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lec_11_110B - Economics110B WorldEconomic HistoryII...

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