Sistema monetário de comércio internacional

O Sistema Comercial e Monetário Internacional.
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R. J. Ball 1 1. London Business School no Reino Unido.
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Capítulo 6 Sistema Monetário Internacional.
O quê tem pra mim?
Qual é o sistema monetário internacional? Qual o papel do Fundo Monetário Internacional (FMI) e do Banco Mundial? Como as instituições monetárias globais afetam os negócios globais?
O comércio global depende da troca suave de moedas entre países. As empresas dependem de um mecanismo previsível e estável. Este capítulo examina a história recente dos sistemas monetários globais e como eles evoluíram nos últimos dois séculos. Enquanto o sistema monetário atual continua a evoluir, as lições aprendidas nos últimos cinquenta anos ajudam a determinar as melhores opções futuras. Como parte do ambiente monetário pós-Segunda Guerra Mundial, foram criadas duas instituições; Essas instituições se expandiram para desempenhar um papel cada vez mais importante na economia mundial. Compreender o papel do FMI e do Banco Mundial fornece informações sobre como os governos dos países em desenvolvimento priorizam e financiam projetos e trabalham com o setor privado para implementar essas iniciativas.
Caso de abertura: McKinsey & amp; Empresa: Vinculando o Mundo Empresarial, os Governos e as Instituições Globais.
Quem é McKinsey?
McKinsey & amp; A empresa é uma empresa de consultoria de gerenciamento global privada que serve como um conselheiro confiável para as principais empresas, governos e instituições do mundo. Reconhecido como líder global, classificou-se como a empresa mais prestigiada no setor de consultoria de gerenciamento pela Vault. "McKinsey & amp; Empresa, "Vault, acessado 9 de fevereiro de 2018, vault / wps / portal / usa / companies / company-profile? WCM_GLOBAL_CONTEXT = / wps / wcm / connect / Vault_Content_Library / empresas + site / empresas / parent_mckinsey + _ + company / mckinsey + _ + company_0 / mckinsey + _ + company_0 & amp; companyId = 328.
James O. "Mac" McKinsey, professor de contabilidade na Universidade de Chicago, fundou McKinsey & amp; Companhia em Chicago em 1926. Ao longo das décadas, McKinsey & amp; A empresa cresceu até a proeminência global, fornecendo serviços especializados de consultoria e obtendo resultados para empresas em uma ampla gama de indústrias e governos.
Hoje, a McKinsey tem uma receita de US $ 6 bilhões e emprega quase 17 mil pessoas em todo o mundo, com mais de 9,000 no nível de diretor. "A empresa está entre os maiores compradores de MBA recém-cunhados nos Estados Unidos." "Maiores empresas privadas da América: # 54 McKinsey & amp; Co., "Forbes, 28 de outubro de 2009, acessado em 9 de fevereiro de 2018, forbes / lists / 2009/21 / private-companies-09_McKinsey-Co_IPPW. html (ênfase adicionada). Os funcionários da McKinsey vêm de todo o mundo, falando mais de 120 idiomas e representando mais de cem nacionalidades.
O que faz a empresa?
Como empresa de consultoria de gestão, a McKinsey é abordada por seus clientes para analisar e resolver problemas complexos. Sua experiência na indústria varia de mídia e entretenimento para a indústria automotiva, produtos químicos e fabricação. O conhecimento funcional inclui todos os aspectos da gestão de uma empresa, incluindo, finanças, tecnologia, vendas, marketing, riscos e operações. A McKinsey tem seu próprio Instituto Global, cujas "investigações independentes combinam a compreensão microeconômica de McKinsey sobre empresas e indústrias com o rigor do pensamento macroeconômico líder para obter perspectivas sobre as forças globais que moldam negócios, governo e sociedade". "McKinsey Global Institute," McKinsey & amp; Empresa, acessada em 9 de fevereiro de 2018, mckinsey / mgi.
O Instituto Global é um dos caminhos da McKinsey para ajudar governos e instituições globais com questões econômicas e empresariais complexas. "Vinte anos de pesquisa do Instituto Global McKinsey mostram que a combinação de setores dentro de uma economia explica muito pouco a diferença na taxa de crescimento do PIB de um país. Em outras palavras, o dinamismo não gira se uma economia possui um grande setor financeiro, ou grandes fabricantes, ou uma indústria de semicondutores, mas sim sobre se os setores são competitivos ou não. Em vez de escolher os vencedores e canalizar os subsídios para eles, os países devem ter o básico certo. Estes incluem uma sólida lei, com patentes e proteções para propriedade intelectual, contratos executáveis ​​e tribunais para resolver disputas; acesso ao financiamento, particularmente para startups; e uma eficiente infra-estrutura física e de comunicações ". James Manyika, Susan Lund e Byron Auguste," From the Ashes ", Newsweek, 16 de agosto de 2018, acessaram 9 de fevereiro de 2018, newsweek / 2018/08/16 / mckinsey-institute - criar-empregos-por-perder-them. html.
Por que a empresa importa para negócios internacionais?
Este capítulo discute o sistema monetário internacional, o FMI e o Banco Mundial. Ao aprender sobre essas partes críticas do ambiente empresarial global, você pode se perguntar o quão exatamente essas instituições e os sistemas monetários liderados pelo governo interagem com o mundo dos negócios. Aprender sobre o negócio de uma empresa de consultoria de gerenciamento como a McKinsey ajuda a ilustrar este link.
Ao longo das décadas, a McKinsey ajudou as empresas globais a entender como entrar em novos mercados em todo o mundo, como competir de forma mais eficaz contra seus concorrentes globais e como aproveitar a eficiência e fazer melhorias em todos os níveis de negócios. Simultaneamente, McKinsey discretamente foi um conselheiro de governos de todo o mundo em questões diversas, incluindo como alterar políticas e regulamentos para incentivar mais comércio e investimento em seus países; desenvolvendo e implementando processos para privatizar indústrias; e criando mais eficiências no setor público. Ao mesmo tempo, a McKinsey ajudou o FMI e a política de artesanato do Banco Mundial a cumprir seus papéis em evolução na economia mundial. Dado o ambiente global muitas vezes politicamente carregado, está claro por que uma empresa como a McKinsey prefere permanecer fora do olho do público. Grande parte do trabalho que a empresa está empenhada em impactos na vida cotidiana das pessoas ao redor do mundo. As empresas e os governos são atraídos pela McKinsey, não só por sua análise e aconselhamento de som, mas também por sua discrição e perspectiva de longo prazo.
Os consultores da McKinsey formam uma rede global invejável que se estende até mesmo aos antigos funcionários. A McKinsey opera sob uma prática de "para cima ou para fora", o que significa que os consultores devem avançar em suas carreiras de consultoria dentro de um prazo predefinido ou deixar a empresa. Não é incomum achar que um consultor deixará a McKinsey para se juntar aos seus clientes no setor privado ou trabalhar para uma instituição governamental ou global. Esta rede de "McKinsey-ites", como eles às vezes são chamados, é evidente em sua influência na política que poderia afetar seus clientes empresariais, tanto no país quanto na indústria. Esta rede ajuda a atrair alguns dos melhores graduados da escola de negócios para a empresa.
Conforme observado em seu site, as pessoas "que se juntam a McKinsey encontram-se parte de uma cultura única, moldada por valores compartilhados e o desejo de ajudar os clientes a fazer melhorias substanciais em seu desempenho. Quando os consultores saem, a conexão deles com nossa empresa e seus antigos colegas permanece forte. Nossos alunos totalizam quase 23 mil e trabalham em quase todos os setores empresariais em quase 120 países. Através de eventos formais e de redes informais, os antigos consultores da McKinsey criam e sustentam relações profissionais. Esta rede dinâmica é um benefício duradouro de uma carreira com a McKinsey. Nossa empresa oferece suporte a ex-alunos que desejam manter contato com a gente e entre si, patrocinando eventos em todo o mundo. "" Alumni, "McKinsey & amp; Empresa, acessada em 9 de fevereiro de 2018, mckinsey / aboutus / alumni.
Um dos aspectos mais interessantes da abordagem comercial da McKinsey é a sua exclusividade. Os consultores desenvolvem conhecimentos especializados e podem trabalhar para concorrentes diretos após pequenos períodos de espera de um ou dois anos. Outras empresas da mesma indústria muitas vezes vêem isso como uma oportunidade para aprender mais sobre as estratégias de seus concorrentes - saber que um concorrente contratou a McKinsey fornece um forte impulso para que as empresas busquem a assistência da McKinsey. No entanto, a McKinsey mantém sua lista de clientes confidencial, e os próprios consultores não podem discutir seu trabalho com outras equipes.
A mística McKinsey é outro aspecto interessante da empresa que acrescenta ao segredo que a rodeia. Apesar do seu tamanho, a empresa não discute situações específicas do cliente e mantém uma imagem externa cuidadosamente elaborada e de baixo perfil, que também a protege do escrutínio público. O compromisso da McKinsey com o poder discricionário ganhou clientes globais e públicos do setor público e respeito.
Considerada rotineiramente como a empresa mais prestigiada do gênero, alcançou um nível de renome tão grande como para ser conhecido mesmo para leigos, apesar de detalhar os detalhes de seu trabalho - e sua lista de clientes - em segredo. Em suas áreas de atuação, aborda questões estratégicas, organizacionais, operacionais e tecnológicas, sempre com um foco - de acordo com a empresa - fazendo o que é certo para o negócio do cliente, e não o que é melhor para a linha de fundo da McKinsey. Quanto à gama dessas especialidades, a lista de setores industriais que a empresa atende abrange tudo, desde commodities e recursos naturais até o mundo da mídia, entretenimento e alta tecnologia. Embora não desista dos nomes de seus clientes (mesmo em estudos de caso, eles se referem a eles com pseudônimos como "BigBank"), a empresa afirma servir mais de 70% da lista de empresas mais admiradas da Fortune, aproximadamente 90% as 100 maiores empresas em todo o mundo e 80% das 100 maiores empresas dos EUA. "McKinsey & amp; Empresa, "Vault, acessado 9 de fevereiro de 2018, vault / wps / portal / usa / companies / company-profile? WCM_GLOBAL_CONTEXT = / wps / wcm / connect / Vault_Content_Library / empresas + site / empresas / parent_mckinsey + _ + company / mckinsey + _ + company_0 / mckinsey + _ + company_0 & amp; companyId = 328.
Embora seja difícil saber detalhes exatos de seus preços, base de clientes, taxa de sucesso e rentabilidade, é claro que a empresa continua ganhando confiança e lealdade de muitas das empresas, governos e instituições globais do mundo.
Exercícios de Caso de Abertura.
(AACSB: Raciocínio Ético, Multiculturalismo, Pensamento Reflectivo, Habilidades Analíticas)
Como o negócio de um consultor de gestão ilustra o vínculo entre empresas, governos e instituições globais? Discuta como uma empresa de consultoria global pode ajudar um cliente do governo. Por que um negócio global no setor privado quer contratar McKinsey se a McKinsey já tivesse feito um trabalho de consultoria para um competidor?
6.1 O que é o sistema monetário internacional?
Objetivos de aprendizado.
Compreenda o papel e o propósito do sistema monetário internacional. Descreva a finalidade do padrão-ouro e por que desmoronou. Descreva o Acordo de Bretton Woods e por que desmoronou. Compreenda o sistema monetário atual de hoje, que se desenvolveu após o colapso do Acordo de Bretton Woods.
Por que as economias precisam de dinheiro? Este capítulo define o dinheiro como uma unidade de conta que é usada como meio de troca em transações. Sem dinheiro, indivíduos e empresas teriam dificuldade em obter (comprar) ou trocar (vender) o que eles precisam, querem ou fazem. O dinheiro nos fornece um meio universalmente aceito de troca.
Antes que o atual sistema monetário possa ser plenamente apreciado, é útil olhar para a história e ver como o dinheiro e os sistemas que governam a utilização do dinheiro evoluíram. Milhares de anos atrás, as pessoas tiveram que trocar se quisessem obter alguma coisa. Isso funcionou bem se as duas pessoas queriam o que o outro tinha. Ainda hoje, o trueque existe. (Capítulo 9 "Exportação, Importação e Sourcing Global" discute o trueque moderno e o comércio contrário).
A história mostra que o antigo Egito e a Mesopotâmia - que engloba a terra entre os rios Eufrates e Tigris e é o Iraque moderno, partes do leste da Síria, sudoeste do Irã e sudeste da Turquia - começaram a usar um sistema baseado nas altamente cobiçadas moedas de ouro e prata, também conhecida como forma mais fina de metal do metal precioso e geralmente em formato de barra ou moeda. Muitas vezes se refere a barras ou moedas de ouro ou prata; tipicamente usado para fins monetários ou econômicos. , que é a forma mais pura do metal precioso. No entanto, o trueque continuou a ser a forma mais comum de troca e comércio.
As moedas de ouro e prata emergiram gradualmente no uso da negociação, embora o teor de ouro e prata puro tenha impactado o valor das moedas. Apenas moedas que consistem em metais preciosos e puros são os lingotes; Todas as outras moedas são referidas simplesmente como moedas. É interessante notar que o ouro e a prata duraram muitos séculos como a base da medida econômica e até mesmo na história relativamente recente do padrão-ouro, que abordaremos na próxima seção. Avanço rápido de dois mil anos e o trueque foi substituído por um sistema baseado em moeda. Mesmo assim, tem havido evoluções no último século sozinho sobre como - globalmente - o sistema monetário evoluiu do uso de ouro e prata para representar riqueza nacional e troca econômica para o sistema atual.
Você sabia?
Ao longo da história, alguns tipos de dinheiro ganharam ampla circulação fora dos países que os emitiram. Sempre que um país ou um império tem controle regional ou global do comércio, sua moeda se torna a moeda dominante para o comércio e governa o sistema monetário dessa época. No meio de um período que depende de uma grande moeda, é fácil esquecer que, ao longo da história, houve outras moedas primárias - um ciclo histórico. Geralmente, a melhor moeda para usar é a mais líquida, a emitida pela nação com a maior economia, bem como geralmente os maiores mercados de importação e exportação. Raramente uma moeda única foi o meio exclusivo do comércio mundial, mas alguns chegaram perto. Aqui está uma rápida olhada em algumas das moedas mais poderosas da história:
Darico persa. O daric era uma moeda de ouro usada na Pérsia entre 522 aC e 330 aC. Moeda romana. As moedas como o aureus (ouro), o denário (prata), o sestertius (bronze), o dupondius (bronze) e o como (cobre) foram usados ​​durante o Império Romano de cerca de 250 aC a 250 d. De cerca de 1486 a 1908, o thaler e suas variações foram usados ​​na Europa como o padrão contra o qual as moedas dos vários estados poderiam ser avaliadas. Pesos espanhóis. Por volta de 1500 até o início do século XIX, este contemporâneo do thaler foi amplamente utilizado na Europa, nas Américas e no Extremo Oriente; tornou-se a primeira moeda mundial até o final do século XVIII. Libra britânica. As origens da libra datam de cerca de 800 dC, mas sua influência cresceu nos anos 1600 como o padrão ouro não oficial; De 1816 a cerca de 1939, a libra era a moeda de reserva global até o colapso do padrão-ouro. Dólar americano. O Coinage Act de 1792 estabeleceu o dólar como base para uma conta monetária, e entrou em circulação dois anos depois como uma moeda de prata. Sua força como moeda de reserva global expandiu-se no século XIX e continua hoje. Euro. Oficialmente em circulação em 1º de janeiro de 1999, o euro continua a atuar como moeda em muitos países europeus hoje.
Vejamos o último século da evolução do sistema monetário internacional. Sistema monetário internacional O sistema e as regras que regem o uso do dinheiro em todo o mundo e entre países. refere-se ao sistema e regras que regem o uso e troca de dinheiro em todo o mundo e entre países. Cada país tem sua própria moeda como dinheiro e o sistema monetário internacional rege as regras para avaliar e trocar essas moedas.
Até o século XIX, as principais economias globais foram focadas regionalmente na Europa, nas Américas, na China e na Índia. Estes estavam vagamente ligados, e não havia um sistema monetário formal que rege suas interações. O resto desta seção analisa os períodos cronológicos distintos ao longo dos últimos 150 anos, levando ao desenvolvimento do sistema financeiro global moderno. Tenha em mente que o sistema continua a evoluir e cada crise o afeta. Não é provável que seja um sistema monetário internacional final, simplesmente um que reflita as atuais realidades econômicas e políticas. Esta é uma das principais razões pelas quais a compreensão do contexto histórico é tão crítica. À medida que o debate sobre os prós e contras do sistema monetário atual continua, alguns economistas estão tentados a defender um retorno aos sistemas do passado. As empresas precisam estar conscientes desses argumentos e das mudanças resultantes, pois serão afetadas por novas regras, regulamentos e estruturas.
Primeira Guerra Mundial.
Como mencionado anteriormente nesta seção, as sociedades antigas começaram a usar o ouro como meio de troca econômica. Gradualmente, mais países adotaram o ouro, geralmente sob a forma de moedas ou lingotes, e este sistema monetário internacional tornou-se conhecido como padrão-ouro. O sistema monetário global anterior à Primeira Guerra Mundial que utilizava o ouro como base do intercâmbio econômico internacional. . Esse sistema emergiu gradualmente, sem o processo estrutural em sistemas mais recentes. O padrão-ouro, em essência, criou um sistema de taxa de câmbio fixo Um sistema em que o preço de uma moeda em relação a outra é fixo e não muda. . Uma taxa de câmbio O preço de uma moeda em termos de uma segunda moeda. é o preço de uma moeda em termos de uma segunda moeda. No sistema padrão-ouro, cada país define o preço da moeda em ouro, especificamente para uma onça de ouro. Uma taxa de câmbio fixa estabiliza o valor de uma moeda em relação a outra e facilita o comércio e o investimento.
Nosso sistema monetário moderno tem raízes no início dos anos 1800. A derrota de Napoleão em 1815, quando a França foi espancada na Batalha de Waterloo, fez da Grã-Bretanha a nação mais forte do mundo, uma posição que ocupava por cerca de cem anos. Na África, o governo britânico se estendeu ao mesmo tempo do Cabo da Boa Esperança ao Cairo. O domínio e a influência britânica também se estenderam ao subcontinente indiano, a península da Malásia, Austrália, Nova Zelândia - que atraiu colonos britânicos - e o Canadá. Sob a bandeira do governo britânico, as empresas britânicas avançaram globalmente e eram as maiores empresas em muitas das colônias, controlando comércio e comércio. Ao longo da história, países fortes, medidos principalmente em termos de força militar, conseguiram promover os interesses das empresas de seus países - um fato que continuou nos tempos modernos, como se vê na proeza global das empresas americanas. As empresas globais, por sua vez, sempre prestaram muita atenção às políticas políticas, militares e econômicas de seus governos e outros.
Em 1821, o Reino Unido, a economia global predominante através dos confins do seu império colonial, adotou o padrão-ouro e comprometeu-se a corrigir o valor da libra britânica. Os principais países comerciais, incluindo a Rússia, a Áustria-Hungria, a Alemanha, a França e os Estados Unidos, seguiram e corrigiram o preço de suas moedas para uma onça de ouro.
O Reino Unido estabeleceu oficialmente o preço da sua moeda, concordando em comprar ou vender uma onça de ouro pelo preço de 4.247 libras esterlinas. Naquela época, os Estados Unidos concordaram em comprar ou vender uma onça de ouro por US $ 20,67. Isso permitiu que as duas moedas fossem trocadas livremente em termos de uma onça de ouro. Em essência,
£ 4.247 = 1 onça de ouro = $ 20.67.
A taxa de câmbio entre o dólar e a libra esterlina foi então calculada por.
$ 20.67 / £ 4.247 = $ 4.867 a £ 1.
As vantagens do padrão ouro.
O padrão-ouro reduziu drasticamente o risco nas taxas de câmbio porque estabeleceu taxas de câmbio fixas entre as moedas. Todas as flutuações foram relativamente pequenas. Isso tornou mais fácil para as empresas globais gerenciar custos e preços. O comércio internacional cresceu em todo o mundo, embora os economistas nem sempre concordem se o padrão-ouro era uma parte essencial dessa tendência.
A segunda vantagem é que os países foram forçados a observar políticas monetárias rigorosas. Eles não podiam apenas imprimir dinheiro para combater as recessões econômicas. Uma das características-chave do padrão-ouro era que uma moeda tinha que ter na reserva o suficiente de ouro para converter toda a sua moeda a ser realizada por qualquer pessoa em ouro. Portanto, o volume de papel moeda não pode exceder as reservas de ouro.
A terceira vantagem principal era que o padrão-ouro ajudaria um país a corrigir o desequilíbrio comercial. Por exemplo, se um país importasse mais do que exportar, (chamado de déficit comercial quando o valor das importações é maior que o valor das exportações), então, sob o padrão-ouro, o país teve que pagar as importações com ouro. O governo do país teria que reduzir a quantidade de papel moeda, porque não poderia haver mais moeda em circulação do que suas reservas de ouro. Com menos dinheiro flutuando, as pessoas teriam menos dinheiro para gastar (causando assim uma diminuição da demanda) e os preços também acabariam por diminuir. Como resultado, com produtos e serviços mais baratos para oferecer, as empresas do país poderiam exportar mais, mudando a balança comercial internacional gradualmente para estar em equilíbrio. Por estes três principais motivos e, como resultado das crises financeiras globais de 2008, alguns economistas modernos estão pedindo o retorno do padrão-ouro ou um sistema similar.
Colapso do Padrão de Ouro.
Se foi tão bom, o que aconteceu? O padrão-ouro eventualmente entrou em colapso do impacto da Primeira Guerra Mundial. Durante a guerra, as nações de ambos os lados tiveram que financiar suas enormes despesas militares e fizeram isso imprimindo mais papel moeda. À medida que a moeda em circulação excedia as reservas de ouro de cada país, muitos países foram forçados a abandonar o padrão-ouro. Na década de 1920, a maioria dos países, incluindo o Reino Unido, os Estados Unidos, a Rússia e a França, retornou ao padrão-ouro no mesmo nível de preços, apesar da instabilidade política, do alto desemprego e da inflação espalhados pela Europa.
No entanto, o avivamento do padrão-ouro foi de curta duração devido à Grande Depressão, que começou no final da década de 1920. A Grande Depressão foi um fenômeno mundial. Em 1928, a Alemanha, o Brasil e as economias do Sudeste Asiático estavam deprimidas. No início de 1929, as economias da Polônia, da Argentina e do Canadá estavam se contraindo e a economia dos Estados Unidos seguiu em meados de 1929. Alguns economistas sugeriram que o maior fator que vincula esses países em conjunto era o padrão-ouro internacional, que eles acreditavam prolongado a grande Depressão. A Concêntrica Enciclopédia da Economia, s. v. "Grande Depressão", acessado em 23 de julho de 2018, econlib / library / Enc / GreatDepression. html. O padrão-ouro limitou a flexibilidade da política monetária dos bancos centrais de cada país, limitando sua capacidade de expandir a oferta monetária. Sob o padrão-ouro, os países não poderiam expandir sua oferta de dinheiro além do permitido pelas reservas de ouro em seus cofres.
Muito dinheiro havia sido criado durante a Primeira Guerra Mundial para permitir um retorno ao padrão-ouro, sem grandes desvalorizações monetárias ou deflagrações de preços. Além disso, o estoque de ouro dos EUA duplicou para cerca de 40% do ouro monetário mundial. Simplesmente não havia dinheiro monetário suficiente no resto do mundo para apoiar as moedas dos países às taxas de câmbio existentes.
Em 1931, o Reino Unido teve que abandonar oficialmente seu compromisso de manter o valor da libra britânica. A moeda foi permitida a flutuar Quando o valor de uma moeda aumenta ou diminui com base na demanda e na oferta. , o que significou que seu valor aumentaria ou diminuirá com base na demanda e na oferta. O dólar dos EUA e o franco francês foram as moedas mais próximas e as nações procuraram fixar o valor de suas moedas para o dólar ou o franco. No entanto, em 1934, os Estados Unidos desvalorizaram sua moeda de US $ 20,67 por onça de ouro para US $ 35 por onça. Com um dólar americano mais barato, as empresas dos EUA puderam exportar mais à medida que o preço de seus produtos e serviços era mais barato em relação a outras nações. Outros países desvalorizaram suas moedas em retaliação do menor dólar dos EUA. Muitos desses países usaram valores de par arbitrários em vez de um preço relativo às reservas de ouro. Cada país esperava tornar suas exportações mais baratas para outros países e reduzir as importações caras. No entanto, com tantos países simultaneamente desvalorizando suas moedas, o impacto nos preços foi cancelado. Muitos países também impuseram tarifas e outras restrições comerciais em um esforço para proteger indústrias domésticas e empregos. Em 1939, o padrão-ouro estava morto; não era mais um indicador exato do valor real de uma moeda.
Pós-Segunda Guerra Mundial.
O desaparecimento do padrão-ouro e o aumento do sistema de Bretton Woods alinhado ao dólar dos EUA também foi um reflexo em mudança da história e da política globais. A influência do Império britânico estava diminuindo. No início dos anos 1800, com a força de sua moeda e poder comercial, o Reino Unido expandiu seu império. No final da Primeira Guerra Mundial, o Império Britânico percorreu mais de um quarto do mundo; O sentimento geral era que "o sol nunca se colocaria no império britânico". Mapas britânicos e globos da época mostraram a extensão do império orgulhosamente pintada em vermelho. No entanto, pouco depois da Segunda Guerra Mundial, muitas das colônias lutaram e alcançaram a independência. Até então, os Estados Unidos substituíram claramente o Reino Unido como o centro econômico global dominante e também a superpotência política e militar.
Você sabia?
Assim como os Estados Unidos se tornaram uma superpotência militar e política global, as empresas norte-americanas também estavam no centro das atenções. Amoco (hoje agora parte da BP), a General Motors (GM), a Kellogg e a Ford Motor Company buscaram capitalizar a força política e militar dos EUA para se expandir em novos mercados ao redor do mundo. Muitas dessas empresas seguiram eventos políticos globais e debateram internamente as direções estratégicas de suas empresas. Por exemplo, a GM teve um grupo interno de política de planejamento pós-guerra.
Não obstante as incertezas econômicas que deveriam acompanhar o fim da guerra, algumas das maiores corporações dos EUA, muitas vezes com ativos consideráveis ​​apreendidos ou destruídos durante a guerra, começaram a planejar o período pós-guerra. Entre estes, estava a General Motors. Já em 1942, a empresa criou um grupo de políticas de planejamento do pós-guerra para estimar a forma provável do mundo após a guerra e fazer recomendações sobre políticas de pós-guerra da GM no exterior.
Em 1943, o grupo político relatou a probabilidade de que as relações entre as potências ocidentais e a União Soviética se deteriorassem após a guerra. Concluiu também que, à exceção da Austrália, a General Motors não deveria comprar fábricas e fábricas para fazer carros em qualquer país que não possuísse instalações antes do conflito. Ao mesmo tempo, afirmou que, depois da guerra, os Estados Unidos estariam em um estado mais forte politicamente e economicamente do que havia sido depois da Primeira Guerra Mundial e que as operações no exterior floresceriam em grande parte do mundo. Por conseguinte, a linha de fundo para a GM era proceder com cautela uma vez que o conflito terminou, mas manter a política que havia enunciado na década de 1920 - buscando mercados onde estivessem disponíveis e construindo quaisquer recursos necessários para melhorar a participação de mercado da GM. Enciclopédia da Nova Nação Americana, s. v. "Empresas multinacionais - Investimento pós-guerra: 1945-1955", acessado em 9 de fevereiro de 2018, relações americanas internacionais / E-N / Empresas multinacionais - Investimento pós-guerra - 1945-1955.html # ixzz18TCwg8VJ.
Bretton Woods.
No início da década de 1940, os Estados Unidos e o Reino Unido iniciaram discussões para formular um novo sistema monetário internacional. John Maynard Keynes, um crítico econômico britânico altamente influente, e Harry Dexter White, um funcionário do Tesouro dos EUA, prepararam o caminho para criar um novo sistema monetário. Em julho de 1944, representantes de quarenta e quatro países se encontraram em Bretton Woods, New Hampshire, para estabelecer um novo sistema monetário internacional.
"O desafio", escreveu Ngaire Woods em seu livro The Globalizers: O FMI, o Banco Mundial e seus Mutuários, "foi conseguir acordo entre os estados sobre como financiar a reconstrução do pós-guerra, estabilizar as taxas de câmbio, fomentar o comércio e evitar o equilíbrio de crises de pagamentos de desvendar o sistema. "Ngaire Woods, Globalizers: O FMI, o Banco Mundial e seus Mutuários (Ithaca, NY: Cornell University Press, 2006), 16.
Você sabia?
Ao longo da história, as discussões políticas, militares e econômicas entre as nações sempre ocorreram simultaneamente em um esforço para criar sinergias entre políticas e esforços. Um foco fundamental dos esforços dos anos 40 para um novo sistema monetário mundial era estabilizar a Europa devastada pela guerra.
Na década que se seguiu à guerra, as administrações de Harry Truman e Dwight Eisenhower olharam para o setor privado para ajudar na recuperação da Europa Ocidental, tanto pelo aumento do comércio quanto pelos investimentos estrangeiros diretos. Na verdade, o Plano Marshall de US $ 13 bilhões, que se tornou o motor da recuperação européia entre 1948 e 1952, se baseava em uma estreita relação de trabalho entre os setores público e privado. Da mesma forma, a Eisenhower pretendia promover a recuperação econômica mundial através do comércio mundial liberalizado e do investimento privado no exterior, e não através da ajuda externa. No decorrer de suas duas administrações (1953-1961), o presidente modificou sua política de "comércio não auxiliar" para um "comércio e ajuda" e mudou seu foco da Europa Ocidental para o Terceiro Mundo, o que ele sentiu ser mais ameaçado pela expansão comunista. Em particular, ele estava preocupado com o que ele chamou de "ofensiva econômica soviética" no Oriente Médio, isto é, empréstimos soviéticos e assistência econômica a países como o Egito e a Síria. Mas mesmo assim ele pretendia que o comércio internacional e os investimentos estrangeiros diretos desempenhassem um papel importante na busca do crescimento econômico global e da prosperidade. Enciclopédia da Nova Nação Americana, s. v. "Empresas multinacionais - Investimento pós-guerra: 1945-1955", acessado em 9 de fevereiro de 2018, relações americanas internacionais / E-N / Empresas multinacionais - Investimento pós-guerra - 1945-1955.html # ixzz18TCwg8VJ.
The resulting Bretton Woods Agreement created a new dollar-based monetary system, which incorporated some of the disciplinary advantages of the gold system while giving countries the flexibility they needed to manage temporary economic setbacks, which had led to the fall of the gold standard. The Bretton Woods Agreement lasted until 1971 and established several key features.
Taxas de Câmbio Fixas.
Fixed exchange rates are also sometimes called pegged rates. One of the critical factors that led to the fall of the gold standard was that after the United Kingdom abandoned its commitment to maintaining the value of the British pound, countries sought to peg their currencies to the US dollar. With the strength of the US economy, the gold supply in the United States increased, while many countries had less gold in reserve than they did currency in circulation. The Bretton Woods system worked to fix this by tying the value of the US dollar to gold but also by tying all of the other countries to the US dollar rather than directly to gold. The par value of the US dollar was fixed at $35 to one ounce of gold. All other countries then set the value of their currencies to the US dollar. In reflection of the changing times, the British pound had undergone a substantial loss in value and by that point, its value was $2.40 to £1. Member countries had to maintain the value of their currencies within 1 percent of the fixed exchange rate. Lastly, the agreement established that only governments, rather than anyone who demanded it, could convert their US dollar holdings into gold—a major improvement over the gold standard. In fact, most businesspeople eventually ignored the technicality of pegging the US dollar to gold and simply utilized the actual exchange rates between countries (e. g., the pound to the dollar) as an economic measure for doing business.
National Flexibility.
To enable countries to manage temporary but serious downturns, the Bretton Woods Agreement provided for a devaluation of a currency—more than 10 percent if needed. Countries could not use this tool to competitively manipulate imports and exports. Rather, the tool was intended to prevent the large-scale economic downturn that took place in the 1930s.
Creation of the International Monetary Fund and the World Bank.
Section 6.2 "What Is the Role of the IMF and the World Bank?" looks at the International Monetary Fund and the World Bank more closely, as they have survived the collapse of the Bretton Woods Agreement. In essence, the IMF’s initial primary purpose was to help manage the fixed rate exchange system; it eventually evolved to help governments correct temporary trade imbalances (typically deficits) with loans. The World Bank’s purpose was to help with post–World War II European reconstruction. Both institutions continue to serve these roles but have evolved into broader institutions that serve essential global purposes, even though the system that created them is long gone. Section 6.2 "What Is the Role of the IMF and the World Bank?" explores them in greater detail and addresses the history, purpose, evolution, and current opportunities and challenges of both institutions.
Collapse of Bretton Woods.
Despite a fixed exchange rate based on the US dollar and more national flexibility, the Bretton Woods Agreement ran into challenges in the early 1970s. The US trade balance had turned to a deficit as Americans were importing more than they were exporting. Throughout the 1950s and 1960s, countries had substantially increased their holdings of US dollars, which was the only currency pegged to gold. By the late 1960s, many of these countries expressed concern that the US did not have enough gold reserves to exchange all of the US dollars in global circulation. This became known as the Triffin Paradox Named after the economist Robert Triffin, who stated that the more dollars foreign countries held, the less faith they had in the ability of the US government to convert those dollars. , named after the economist Robert Triffin, who identified this problem. He noted that the more dollars foreign countries held, the less faith they had in the ability of the US government to convert those dollars. Like banks, though, countries do not keep enough gold or cash on hand to honor all of their liabilities. They maintain a percentage, called a reserve A main currency that many countries and institutions hold as part of their foreign exchange reserves. Reserve currencies are often international pricing currencies for world products and services. Current reserve currencies are the US dollar, the euro, the British pound, the Swiss franc, and the Japanese yen. . Bank reserve ratios are usually 10 percent or less. (The low reserve ratio has been blamed by many as a cause of the 2008 financial crisis.) Some countries state their reserve ratios openly, and most seek to actively manage their ratios daily with open-market monetary policies—that is, buying and selling government securities and other financial instruments, which indirectly controls the total money supply in circulation, which in turn impacts supply and demand for the currency.
The expense of the Vietnam War and an increase in domestic spending worsened the Triffin Paradox; the US government began to run huge budget deficits, which further weakened global confidence in the US dollar. When nations began demanding gold in exchange for their dollars, there was a huge global sell-off of the US dollar, resulting in the Nixon Shock in 1971.
The Nixon Shock was a series of economic decisions made by the US President Richard Nixon in 1971 that led to the demise of the Bretton Woods system. Without consulting the other member countries, on August 15, 1971, Nixon ended the free convertibility of the US dollar into gold and instituted price and wage freezes among other economic measures.
Later that same year, the member countries reached the Smithsonian Agreement, which devalued the US dollar to $38 per ounce of gold, increased the value of other countries’ currencies to the dollar, and increased the band within which a currency was allowed to float from 1 percent to 2.25 percent. This agreement still relied on the US dollar to be the strong reserve currency and the persistent concerns over the high inflation and trade deficits continued to weaken confidence in the system. Countries gradually dropped out of system—notably Germany, the United Kingdom, and Switzerland, all of which began to allow their currencies to float freely against the dollar. The Smithsonian Agreement was an insufficient response to the economic challenges; by 1973, the idea of fixed exchange rates was over.
Before moving on, recall that the major significance of the Bretton Woods Agreement was that it was the first formal institution that governed international monetary systems. By having a formal set of rules, regulations, and guidelines for decision making, the Bretton Woods Agreement established a higher level of economic stability. International businesses benefited from the almost thirty years of stability in exchange rates. Bretton Woods established a standard for future monetary systems to improve on; countries today continue to explore how best to achieve this. Nothing has fully replaced Bretton Woods to this day, despite extensive efforts.
Post–Bretton Woods Systems and Subsequent Exchange Rate Efforts.
When Bretton Woods was established, one of the original architects, Keynes, initially proposed creating an international currency called Bancor as the main currency for clearing. However, the Americans had an alternative proposal for the creation of a central currency called unitas. Neither gained momentum; the US dollar was the reserve currency. Reserve currency A main currency that many countries and institutions hold as part of their foreign exchange reserves. Reserve currencies are often international pricing currencies for world products and services. Current reserve currencies are the US dollar, the euro, the British pound, the Swiss franc, and the Japanese yen. is a main currency that many countries and institutions hold as part of their foreign exchange reserves. Reserve currencies are often international pricing currencies for world products and services. Examples of current reserve currencies are the US dollar, the euro, the British pound, the Swiss franc, and the Japanese yen.
Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external shocks ever since.
The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its lending instruments. To help oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices, it set up the first of two oil facilities. “The End of the Bretton Woods System (1972–81),” International Monetary Fund, accessed July 26, 2018, imf/external/about/histend. htm.
After the collapse of Bretton Woods and the Smithsonian Agreement, several new efforts tried to replace the global system. The most noteworthy regional effort resulted in the European Monetary System (EMS) and the creation of a single currency, the euro. While there have been no completely effective efforts to replace Bretton Woods on a global level, there have been efforts that have provided ongoing exchange rate mechanisms.
Jamaica Agreement.
In 1976, countries met to formalize a floating exchange rate system as the new international monetary system. The Jamaica Agreement established a managed float system of exchange rates A system in which currencies float against one another with governments intervening only to stabilize their currencies at set target exchange rates. , in which currencies float against one another with governments intervening only to stabilize their currencies at set target exchange rates. This is in contrast to a completely free floating exchange rate system A system in which currencies freely float against each other and there is no government intervention. , which has no government intervention; currencies float freely against one another. The Jamaica Agreement also removed gold as the primary reserve asset of the IMF. Additionally, the purpose of the IMF was expanded to include lending money as a last resort to countries with balance-of-payment challenges.
The Gs Begin.
In the early 1980s, the value of the US dollar increased, pushing up the prices of US exports and thereby increasing the trade deficit. To address the imbalances, five of the world’s largest economies met in September 1985 to determine a solution. The five countries were Britain, France, Germany, Japan, and the United States; this group became known as the Group of Five The original five largest industrial powers—Britain, France, Germany, Japan, and the United States—who met to reduce and stabilize the value of the dollar. , shortened to G5. The 1985 agreement, called the Plaza Accord because it was held at the Plaza Hotel in New York City, focused on forcing down the value of the US dollar through collective efforts.
By February 1987, the markets had pushed the dollar value down, and some worried it was now valued too low. The G5 met again, but now as the Group of Seven, adding Italy and Canada—it became known as the G7. The Louvre Accord, so named for being agreed on in Paris, stabilized the dollar. The countries agreed to support the dollar at the current valuation. The G7 continued to meet regularly to address ongoing economic issues.
The G7 was expanded in 1999 to include twenty countries as a response to the financial crises of the late 1990s and the growing recognition that key emerging-market countries were not adequately included in the core of global economic discussions and governance. It was not until a decade later, though, that the G20 effectively replaced the G8, which was made up of the original G7 and Russia. The European Union was represented in G20 but could not host or chair the group.
Keeping all of these different groups straight can be very confusing. The news may report on different groupings as countries are added or removed from time to time. The key point to remember is that anything related to a G is likely to be a forum consisting of finance ministers and governors of central banks who are meeting to discuss matters related to cooperating on an international monetary system and key issues in the global economy.
The G20 is likely to be the stronger forum for the foreseeable future, given the number of countries it includes and the amount of world trade it represents. “Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world’s population.” “About G-20,” G-20, accessed July 25, 2018, g20/en.
Você sabia?
“At present, a number of groups are jostling to be the pre-eminent forum for discussions between world leaders. The G20 ended 2009 by in effect replacing the old G8. But that is not the end of the matter. In 2018 the G20 began to face a new challenger—G2 [the United States and China]. To confuse matters further, lobbies have emerged advocating the formation of a G13 and a G3.” Gideon Rachman, “A Modern Guide to G-ology,” Economist , November 13, 2009, accessed February 9, 2018, economist/node/14742524. The G20 is a powerful, informal group of nineteen countries and the European Union. It also includes a representative from the World Bank and the International Monetary Fund. The list developed from an effort to include major developing countries with countries with developed economies. Its purpose is to address issues of the international financial system.
So just who’s in the current G20?
Today’s Exchange Rate System.
While there is not an official replacement to the Bretton Woods system, there are provisions in place through the ongoing forum discussions of the G20. Today’s system remains—in large part—a managed float system, with the US dollar and the euro jostling to be the premier global currency. For businesses that once quoted primarily in US dollars, pricing is now just as often noted in the euro as well.
Ethics in Action.
The Wall Street Journal ’s July 30, 2018, edition noted how gangsters are helping provide stability in the euro zone. The highest denomination of a euro is a €500 bill, in contrast to the United States, where the largest bill is a $100 bill.
The high-value bills are increasingly “making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments,” wrote Willem Buiter, the chief economist at Citigroup….
When euro notes and coins went into circulation in January 2002, the value of €500 notes outstanding was €30.8 billion ($40 billion), according to the ECB [European Central Bank].
Today some €285 billion worth of such euro notes are in existence, an annual growth rate of 32 percent. By value, 35 percent of euro notes in circulation are in the highest denomination, the €500 bill that few people ever see.
In 1998, then-U. S. Treasury official Gary Gensler worried publicly about the competition to the $100 bill, the biggest U. S. bank note, posed by the big euro notes and their likely use by criminals. He pointed out that $1 million in $100 bills weighs 22 pounds; in hypothetical $500 bills, it would weigh just 4.4 pounds.
Police forces have found the big euro notes in cereal boxes, tires and in hidden compartments in trucks, says Soren Pedersen, spokesman for Europol, the European police agency based in The Hague. “Needless to say, this cash is often linked to the illegal drugs trade, which explains the similarity in methods of concealment that are used.” Stephen Fidler, “How Gangsters Are Saving Euro Zone,” Wall Street Journal , July 30, 2018, accessed February 9, 2018, online. wsj/article/SB10001424052748704532204575397543634034112.html.
While you might think that the ECB should just stop issuing the larger denominations, it turns out that the ECB and the member governments of the euro zone actually benefit from this demand.
The profit a central bank gains from issuing currency—as well as from other privileges of a central bank, such as being able to demand no-cost or low-cost deposits from banks—is known as seigniorage. It normally accrues to national treasuries once the central banks account for their own costs.
The ECB’s gains from seigniorage are becoming increasingly important this year….
In recent years, the profits on its issue of new paper currency have been running at €50 billion.” Stephen Fidler, “How Gangsters Are Saving Euro Zone,” Wall Street Journal , July 30, 2018, accessed February 9, 2018, online. wsj/article/SB10001424052748704532204575397543634034112.html.
Some smaller nations have chosen to voluntarily set exchange rates against the dollar while other countries have selected the euro. Usually a country makes the decision between the dollar and the euro by reviewing their largest trading partners. By choosing the euro or the dollar, countries seek currency stability and a reduction in inflation, among other various perceived benefits. Many countries in Latin America once dollarized to provide currency stability for their economy. Today, this is changing, as individual economies have strengthened and countries are now seeking to dedollarize.
Spotlight on Dollarizing and Dedollarizing in Latin America.
Many countries in Latin America have endured years of political and economic instability, which has exacerbated the massive inequality that has characterized the societies in modern times. Most of the wealth is in the hands of the white elite, who live sophisticated lives in the large cities, eating in fancy restaurants and flying off to Miami for shopping trips. Indeed, major cities often look much like any other modern, industrialized cities, complete with cinemas, fast-food restaurants, Internet cafés, and shopping malls.
But while the rich enjoy an enviable lifestyle, the vast majority of the continent’s large indigenous population often lives in extreme poverty. While international aid programs attempt to alleviate the poverty, a lot depends on the country’s government. Corrupt governments slow down the pace of progress.
Over the past two decades, governments in Ecuador and Peru—as well as others in Latin America including Bolivia, Paraguay, Panama, El Salvador, and Uruguay—have opted to dollarize to stabilize their countries’ economies. Each country replaced its national currency with the US dollar. Each country has struggled economically despite abundant natural resources. Economic cycles in key industries, such as oil and commodities, contributed to high inflation. While the move to dollarize was not always popular domestically initially, its success has been clearly evident. In both Ecuador and Peru, dollarizing has provided a much needed benefit, although one country expects to continue aligning with the US dollar and the other hopes to move away from it.
In Ecuador, for example, a decade after dollarizing, one cannot dismiss the survival of dollarization as coincidence. Dollarization has provided Ecuador with the longest period of a stable, fully convertible currency in a century. Its foremost result has been that inflation has dropped to single digits and remained there for the first time since 1972. The stability that dollarization has provided has also helped the economy grow an average of 4.3 percent a year in real terms, fostering a drop in the poverty rate from 56 percent of the population in 1999 to 35 percent in 2008. As a result, dollarization has been popular, with polls showing that more than three-quarters of Ecuadorians approve of it. Pedro P. Romero, “Ecuador Dollarization: Anchor in a Storm,” Latin Business Chronicle , January 23, 2009, accessed February 9, 2018, latinbusinesschronicle/app/article. aspx? id=3096.
However, this success could not protect the country from the effects of the 2008 global financial crisis and economic downturn, which led to falling remittances and declining oil revenue for Ecuador. The country “lacks a reliable political system, legal system, or investment climate. Dollarization is the only government policy that provides Ecuadorians with a trustworthy basis for earning, saving, investing, and paying.” Pedro P. Romero, “Ecuador Dollarization: Anchor in a Storm,” Latin Business Chronicle , January 23, 2009, accessed February 9, 2018, latinbusinesschronicle/app/article. aspx? id=3096.
Peru first opted to dollarize in the early 1970s as a result of the high inflation, which peaked during the hyperinflation of 1988−90. “With high inflation, the U. S. dollar started to be the preferred means of payments and store of value.” Mercedes García-Escribano, “Peru: Drivers of De-dollarization,” International Monetary Fund, July 2018, accessed May 9, 2018, bcrp. gob. pe/docs/Publicaciones/Documentos-de-Trabajo/2018/Documento-de-Trabajo-11-2018.pdf. Dollarization was the only option to stabilize prices. A key cost of dollarizing, however, is losing monetary independence. Another cost is that the business cycle in the country is tied more closely to fluctuations in the US economy and currency. Balancing the benefits and the costs is an ongoing concern for governments.
Despite attempts to dedollarize in the 1980s, it was not until the recent decade that Peru has successfully pursued a market-driven financial dedollarization. Dedollarization occurs when a country reduces its reliance on dollarizing credit and deposit of commercial banks. In Peru, as in some other Latin American countries—such as Bolivia, Uruguay and Paraguay—dedollarization has been “driven by macroeconomic stability, introduction of prudential policies to better reflect currency risk (such as the management of reserve requirements), and the development of the capital market in soles” (the local Peruvian currency). Mercedes García-Escribano, “Peru: Drivers of De-dollarization, International Monetary Fund,” July 2018, accessed May 9, 2018, bcrp. gob. pe/docs/Publicaciones/Documentos-de-Trabajo/2018/Documento-de-Trabajo-11-2018.pdf.
Dedollarizing is still a relatively recent phenomenon, and economists are still trying to understand the implications and impact on businesses and the local economy in each country. What is clear is that governments view dedollarizing as one more tool toward having greater control over their economies.
Key Takeaways.
The international monetary system had many informal and formal stages. For more than one hundred years, the gold standard provided a stable means for countries to exchange their currencies and facilitate trade. With the Great Depression, the gold standard collapsed and gradually gave way to the Bretton Woods system. The Bretton Woods system established a new monetary system based on the US dollar. This system incorporated some of the disciplinary advantages of the gold system while giving countries the flexibility they needed to manage temporary economic setbacks, which had led to the fall of the gold standard. The Bretton Woods system lasted until 1971 and provided the longest formal mechanism for an exchange-rate system and forums for countries to cooperate on coordinating policy and navigating temporary economic crises. While no new formal system has replaced Bretton Woods, some of its key elements have endured, including a modified managed float of foreign exchange, the International Monetary Fund (IMF), and the World Bank—although each has evolved to meet changing world conditions.
(AACSB: Reflective Thinking, Analytical Skills)
What is the international monetary system? What was the gold standard, and why did it collapse? What was Bretton Woods, and why did it collapse? What is the current system of exchange rates?
6.2 What Is the Role of the IMF and the World Bank?
Objetivos de aprendizado.
Understand the history and purpose of the IMF. Describe the IMF’s current role and major challenges and opportunities. Understand the history and purpose of the World Bank. Describe the World Bank’s current role and major challenges and opportunities.
Section 6.1 "What Is the International Monetary System?" discusses how, during the 1930s, the Great Depression resulted in failing economies. The fall of the gold standard led countries to raise trade barriers, devalue their currencies to compete against one another for export markets and curtail usage of foreign exchange by their citizens. All these factors led to declining world trade, high unemployment, and plummeting living standards in many countries. In 1944, the Bretton Woods Agreement established a new international monetary system. The creation of the International Monetary Fund (IMF) and the World Bank were two of its most enduring legacies.
The World Bank and the IMF, often called the Bretton Woods Institutions, are twin intergovernmental pillars supporting the structure of the world’s economic and financial order. Both have taken on expanding roles, and there have been renewed calls for additional expansion of their responsibilities, particularly in the continuing absence of a single global monetary agreement. The two institutions may seem to have confusing or overlapping functions. However, while some similarities exist (see the following figure), they are two distinct organizations with different roles.
“Despite these and other similarities, however, the Bank and the IMF remain distinct. The fundamental difference is this: the Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations. Each has a different purpose, a distinct structure, receives its funding from different sources, assists different categories of members, and strives to achieve distinct goals through methods peculiar to itself.” David D. Driscoll, “The IMF and the World Bank: How Do They Differ?,” International Monetary Fund, last updated August 1996, accessed February 9, 2018, imf/external/pubs/ft/exrp/differ/differ. htm (emphasis added). This section explores both of these institutions and how they have evolved in the almost seventy years since their creation.
International Monetary Fund.
History and Purpose.
Figure 6.1 IMF Headquarters in Washington, DC.
Source: International Monetary Fund, 2018.
The architects of the Bretton Woods Agreement, John Maynard Keynes and Harry Dexter White, envisioned an institution that would oversee the international monetary system, exchange rates, and international payments to enable countries and their citizens to buy goods and services from each other. They expected that this new global entity would ensure exchange rate stability and encourage its member countries to eliminate the exchange restrictions that hindered trade. Officially, the IMF came into existence in December 1945 with twenty-nine member countries. (The Soviets, who were at Bretton Woods, refused to join the IMF.)
In 1947, the institution’s first formal year of operations, the French became the first nation to borrow from the IMF. Over the next thirty years, more countries joined the IMF, including some African countries in the 1960s. The Soviet bloc nations remained the exception and were not part of the IMF until the fall of the Berlin Wall in 1989. The IMF experienced another large increase in members in the 1990s with the addition of Russia; Russia was also placed on the IMF’s executive committee. Today, 187 countries are members of the IMF; twenty-four of those countries or groups of countries are represented on the executive board.
The purposes of the International Monetary Fund are as follows:
To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. “Articles of Agreement: Article I—Purposes,” International Monetary Fund, accessed May 23, 2018, imf/external/pubs/ft/aa/aa01.htm.
In addition to financial assistance, the IMF also provides member countries with technical assistance to create and implement effective policies, particularly economic, monetary, and banking policy and regulations.
Special Drawing Rights (SDRs)
A Special Drawing Right (SDR) An international monetary reserve asset of the IMF. is basically an international monetary reserve asset. SDRs were created in 1969 by the IMF in response to the Triffin Paradox. The Triffin Paradox stated that the more US dollars were used as a base reserve currency, the less faith that countries had in the ability of the US government to convert those dollars to gold. The world was still using the Bretton Woods system, and the initial expectation was that SDRs would replace the US dollar as the global monetary reserve currency, thus solving the Triffin Paradox. Bretton Woods collapsed a few years later, but the concept of an SDR solidified. Today the value of an SDR consists of the value of four of the IMF’s biggest members’ currencies—the US dollar, the British pound, the Japanese yen, and the euro—but the currencies do not hold equal weight. SDRs are quoted in terms of US dollars. The basket, or group of currencies, is reviewed every five years by the IMF executive board and is based on the currency’s role in international trade and finance. The following chart shows the current valuation in percentages of the four currencies.
The SDR is not a currency, but some refer to it as a form of IMF currency. It does not constitute a claim on the IMF, which only serves to provide a mechanism for buying, selling, and exchanging SDRs. Countries are allocated SDRs, which are included in the member country’s reserves. SDRs can be exchanged between countries along with currencies. The SDR serves as the unit of account of the IMF and some other international organizations, and countries borrow from the IMF in SDRs in times of economic need.
The IMF’s Current Role and Major Challenges and Opportunities.
Criticism and Challenging Areas for the IMF.
The IMF supports many developing nations by helping them overcome monetary challenges and to maintain a stable international financial system. Despite this clearly defined purpose, the execution of its work can be very complicated and can have wide repercussions for the recipient nations. As a result, the IMF has both its critics and its supporters. The challenges for organizations like the the IMF and the World Bank center not only on some of their operating deficiencies but also on the global political environment in which they operate. The IMF has been subject to a range of criticisms that are generally focused on the conditions of its loans, its lack of accountability, and its willingness to lend to countries with bad human rights records. David N. Balaam and Michael Veseth, Introduction to International Political Economy , 4th ed. (Upper Saddle River, NJ: Pearson Education International/Prentice Hall), 2005.
These criticisms include the following:
Conditions for loans. The IMF makes the loan given to countries conditional on the implementation of certain economic policies, which typically include the following:
Reducing government borrowing (higher taxes and lower spending) Higher interest rates to stabilize the currency Allowing failing firms to go bankrupt Structural adjustment (privatization, deregulation, reducing corruption and bureaucracy) “Criticism of IMF,” Economics Help, accessed June 28, 2018, economicshelp/dictionary/i/imf-criticism. html.
The austere policies have worked at times but always extract a political toll as the impact on average citizens is usually quite harsh. The opening case in Chapter 2 "International Trade and Foreign Direct Investment" presents the current impact of IMF policies on Greece. Some suggest that the loan conditions are “based on what is termed the ‘Washington Consensus,’ focusing on liberalisation—of trade, investment and the financial sector—, deregulation and privatisation of nationalised industries. Often the conditionalities are attached without due regard for the borrower countries’ individual circumstances and the prescriptive recommendations by the World Bank and IMF fail to resolve the economic problems within the countries. IMF conditionalities may additionally result in the loss of a state’s authority to govern its own economy as national economic policies are predetermined under IMF packages.” “What Are the Main Concerns and Criticism about the World Bank and IMF?,” Bretton Woods Project, January 25, 2007, accessed February 9, 2018, brettonwoodsproject/item. shtml? x=320869.
Opportunities and Future Outlook for the IMF.
The 2008 global economic crisis is one of the toughest situations that the IMF has had to contend with since the Great Depression.
For most of the first decade of the twenty-first century, global trade and finance fueled a global expansion that enabled many countries to repay any money they had borrowed from the IMF and other official creditors. These countries also used surpluses in trade to accumulate foreign exchange reserves. The global economic crisis that began with the 2007 collapse of mortgage lending in the United States and spread around the world in 2008 was preceded by large imbalances in global capital flows. Global capital flows fluctuated between 2 and 6 percent of world GDP between 1980 and 1995, but since then they have risen to 15 percent of GDP. The most rapid increase has been experienced by advanced economies, but emerging markets and developing countries have also become more financially integrated.
The founders of the Bretton Woods system had taken for granted that private capital flows would never again resume the prominent role they had in the nineteenth and early twentieth centuries, and the IMF had traditionally lent to members facing current account difficulties. The 2008 global crisis uncovered fragility in the advanced financial markets that soon led to the worst global downturn since the Great Depression. Suddenly, the IMF was inundated with requests for standby arrangements and other forms of financial and policy support.
The international community recognized that the IMF’s financial resources were as important as ever and were likely to be stretched thin before the crisis was over. With broad support from creditor countries, the IMF’s lending capacity tripled to around $750 billion. To use those funds effectively, the IMF overhauled its lending policies. It created a flexible credit line for countries with strong economic fundamentals and a track record of successful policy implementation. Other reforms targeted low-income countries. These factors enabled the IMF to disburse very large sums quickly; the disbursements were based on the needs of borrowing countries and were not as tightly constrained by quotas as in the past. “Globalization and the Crisis (2005–Present),” International Monetary Fund, accessed July 26, 2018, imf/external/about/histglob. htm.
Many observers credit the IMF’s quick responses and leadership role in helping avoid a potentially worse global financial crisis. As noted in the Chapter 5 "Global and Regional Economic Cooperation and Integration" opening case on Greece, the IMF has played a role in helping countries avert widespread financial disasters. The IMF’s requirements are not always popular but are usually effective, which has led to its expanding influence. The IMF has sought to correct some of the criticisms; according to a Foreign Policy in Focus essay designed to stimulate dialogue on the IMF, the fund’s strengths and opportunities include the following:
Flexibility and speed. “In March 2009, the IMF created the Flexible Credit Line (FCL), which is a fast-disbursing loan facility with low conditionality aimed at reassuring investors by injecting liquidity…Traditionally, IMF loan programs require the imposition of austerity measures such as raising interest rates that can reduce foreign investment…In the case of the FCL, countries qualify for it not on the basis of their promises, but on the basis of their history. Just as individual borrowers with good credit histories are eligible for loans at lower interest rates than their risky counterparts, similarly, countries with sound macroeconomic fundamentals are eligible for drawings under the FCL. A similar program has been proposed for low-income countries. Known as the Rapid Credit Facility, it is front-loaded (allowing for a single, up-front payout as with the FCL) and is also intended to have low conditionality.” Martin S. Edwards, “The IMF’s New Toolkit: New Opportunities, Old Challenges,” Foreign Policy in Focus, September 17, 2009, accessed June 28, 2018, fpif/articles/the_imfs_new_toolkit_new_opportunities_old_challenges. Cheerleading. “The Fund is positioning itself to be less of an adversary and more of a cheerleader to member countries. For some countries that need loans more for reassurance than reform, these changes to the Fund toolkit are welcome.” Martin S. Edwards, “The IMF’s New Toolkit: New Opportunities, Old Challenges,” Foreign Policy in Focus, September 17, 2009, accessed June 28, 2018, fpif/articles/the_imfs_new_toolkit_new_opportunities_old_challenges. This enables more domestic political and economic stability. Adaptabilidade. “Instead of providing the same medicine to all countries regardless of their particular problems, the new loan facilities are intended to aid reform-minded governments by providing short-term resources to reassure investors. In this manner, they help politicians in developing countries manage the downside costs of integration.” Martin S. Edwards, “The IMF’s New Toolkit: New Opportunities, Old Challenges,” Foreign Policy in Focus, September 17, 2009, accessed June 28, 2018, fpif/articles/the_imfs_new_toolkit_new_opportunities_old_challenges. Transparency. The IMF has made efforts to improve its own transparency and continues to encourage its member countries to do so. Supporters note that this creates a barrier to any one or more countries that have more geopolitical influence in the organization. In reality, the major economies continue to exert influence on policy and implementation.
To underscore the global expectations for the IMF’s role, China, Russia, and other global economies have renewed calls for the G20 to replace the US dollar as the international reserve currency with a new global system controlled by the IMF.
The Financial Times reported that Zhou Xiaochuan, the Chinese central bank’s governor, said the goal would be to create a reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies. “‘This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,’ said Qu Hongbin, chief China economist for HSBC.” Jamil Anderlini, “China Calls for New Reserve Currency,” Financial Times , March 24, 2009, accessed February 9, 2018, ft/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac. html#axzz1DTvW5KyI.
Although Mr. Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system:
“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.
China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.
To replace the current system, Mr. Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s….
Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s. Jamil Anderlini, “China Calls for New Reserve Currency,” Financial Times , March 24, 2009, accessed February 9, 2018, ft/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac. html#axzz1DTvW5KyI.
China is politically and economically motivated to recommend an alternative reserve currency. Politically, the country whose currency is the reserve currency is perceived as the dominant economic power, as Section 6.1 "What Is the International Monetary System?" discusses. Economically, China has come under increasing global pressure to increase the value of its currency, the renminbi, which Section 6.3 "Understanding How International Monetary Policy, the IMF, and the World Bank Impact Business Practices" discusses in greater depth.
The World Bank and the World Bank Group.
History and Purpose.
Figure 6.2 World Bank Headquarters in Washington, DC.
Source: World Bank, 2018.
The World Bank came into existence in 1944 at the Bretton Woods conference. Its formal name is the International Bank for Reconstruction and Development (IBRD), which clearly states its primary purpose of financing economic development. The World Bank’s first loans were extended during the late 1940s to finance the reconstruction of the war-ravaged economies of Western Europe. When these nations recovered some measure of economic self-sufficiency, the World Bank turned its attention to assisting the world’s poorer nations. The World Bank has one central purpose: to promote economic and social progress in developing countries by helping raise productivity so that their people may live a better and fuller life:
[In 2009,] the World Bank provided $46.9 billion for 303 projects in developing countries worldwide, with our financial and/or technical expertise aimed at helping those countries reduce poverty.
The Bank is currently involved in more than 1,800 projects in virtually every sector and developing country. The projects are as diverse as providing microcredit in Bosnia and Herzegovina, raising AIDS-prevention awareness in Guinea, supporting education of girls in Bangladesh, improving health care delivery in Mexico, and helping East Timor rebuild upon independence and India rebuild Gujarat after a devastating earthquake. “Projects,” The World Bank, accessed February 9, 2018, go. worldbank/M7ARDFNB60.
Today, The World Bank consists of two main bodies, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), established in 1960. The World Bank is part of the broader World Bank Group, which consists of five interrelated institutions: the IBRD; the IDA; the International Finance Corporation (IFC), which was established in 1956; the Multilateral Investment Guarantee Agency (MIGA), which was established in 1988; and the International Centre for Settlement of Investment Disputes (ICSID), which was established in 1966. These additional members of the World Bank Group have specific purposes as well. The IDA typically provides interest-free loans to countries with sovereign guarantees. The IFC provides loans, equity, risk-management tools, and structured finance. Its goal is to facilitate sustainable development by improving investments in the private sector. The MIGA focuses on improving the foreign direct investment of developing countries. The ICSID provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.
The current primary focus of the World Bank centers on six strategic themes:
The poorest countries. Poverty reduction and sustainable growth in the poorest countries, especially in Africa. Postconflict and fragile states. Solutions to the special challenges of postconflict countries and fragile states. Middle-income countries. Development solutions with customized services as well as financing for middle-income countries. Global public goods. Addressing regional and global issues that cross national borders, such as climate change, infectious diseases, and trade. The Arab world. Greater development and opportunity in the Arab world. Knowledge and learning. Leveraging the best global knowledge to support development. “To Meet Global Challenges, Six Strategic Themes,” The World Bank, accessed February 9, 2018, go. worldbank/56O9ZVPO70.
The World Bank provides low-interest loans, interest-free credits, and grants to developing countries. There’s always a government (or “sovereign”) guarantee of repayment subject to general conditions. The World Bank is directed to make loans for projects but never to fund a trade deficit. These loans must have a reasonable likelihood of being repaid. The IDA was created to offer an alternative loan option. IDA loans are free of interest and offered for several decades, with a ten-year grace period before the country receiving the loan needs to begin repayment. These loans are often called soft loans Loans made by an international organization. In this chapter, the IDA is a long-term option for countries. These loans have no interest and have a grace period of several decades for repayment. There’s also a possibility that the country may not repay the loan. .
Since it issued its first bonds in 1947, the IBRD generates funds for its development work through the international capital markets (which Chapter 7 "Foreign Exchange and the Global Capital Markets" covers). The World Bank issues bonds, typically about $25 billion a year. These bonds are rated AAA (the highest possible rating) because they are backed by member states’ shared capital and by borrowers’ sovereign guarantees. Because of the AAA credit rating, the World Bank is able to borrow at relatively low interest rates. This provides a cheaper funding source for developing countries, as most developing countries have considerably low credit ratings. The World Bank charges a fee of about 1 percent to cover its administrative overheads.
What Are the World Bank’s Current Role and Major Challenges and Opportunities?
Like the IMF, the World Bank has both its critics and its supporters. The criticisms of the World Bank extend from the challenges that it faces in the global operating environment. Some of these challenges have complicated causes; some result from the conflict between nations and the global financial crisis. The following are four examples of the world’s difficult needs that the World Bank tries to address:
Even in 2018, over 3 billion people lived on less than $2.50 a day. At the start of the twenty-first century, almost a billion people couldn’t read a book or sign their names. Less than 1 percent of what the world spends each year on weapons would have put every child into school by the year 2000, but it didn’t happen. Fragile states such as Afghanistan, Rwanda, and Sri Lanka face severe development challenges: weak institutional capacity, poor governance, political instability, and often ongoing violence or the legacy of past conflict. Anup Shah, “Causes of Poverty,” Global Issues , last modified April 25, 2018, accessed August 1, 2018, globalissues/issue/2/causes-of-poverty.
According to the Encyclopedia of the New American Nation and the New York Times , the World Bank is criticized primarily for the following reasons:
Administrative incompetence. The World Bank and its lending practices are increasingly scrutinized, with critics asserting that “the World Bank has shifted from being a ‘lender of last resort’ to an international welfare organization,” resulting in an institution that is “bloated, incompetent, and even corrupt.” Also incriminating is that “the bank’s lax lending standards have led to a rapidly deteriorating loan portfolio.” Encyclopedia of the New American Nation , s. v., “International Monetary Fund and World Bank—World Bank Critics on the Right and Left,” accessed June 29, 2018, americanforeignrelations/E-N/International-Monetary-Fund-and-World-Bank-World-bank-critics-on-the-right-and-left. html. Rewarding or supporting inefficient or corrupt countries. The bank’s lending policies often reward macroeconomic inefficiency in the underdeveloped world, allowing inefficient nations to avoid the types of fundamental reforms that would in the long run end poverty in their countries. Many analysts note that the best example is to compare.
the fantastic growth in East Asia to the deplorable economic conditions of Africa. In 1950 the regions were alike—South Korea had a lower per capita GDP than Nigeria. But by pursuing macroeconomic reforms, high savings, investing in education and basic social services, and opening their economies to the global trading order, the “Pacific Tigers” have been able to lift themselves out of poverty and into wealth with very little help from the World Bank. Many countries in Africa, however, have relied primarily on multilateral assistance from organizations like the World Bank while avoiding fundamental macroeconomic reforms, with deplorable but predictable results.
Conservatives point out that the World Bank has lent more than $350 billion over a half-century, mostly to the underdeveloped world, with little to show for it. One study argued that of the sixty-six countries that received funding from the bank from 1975 to 2000, well over half were no better off than before, and twenty were actually worse off. The study pointed out that Niger received $637 million between 1965 and 1995, yet its per capita GNP had fallen, in real terms, more than 50 percent during that time. In the same period Singapore, which received one-seventh as much World Bank aid, had seen its per capita GNP increase by more than 6 percent a year. Encyclopedia of the New American Nation , s. v., “International Monetary Fund and World Bank—World Bank Critics on the Right and Left,” accessed June 29, 2018, americanforeignrelations/E-N/International-Monetary-Fund-and-World-Bank-World-bank-critics-on-the-right-and-left. html.
Focusing on large projects rather than local initiatives. Some critics claim that World Bank loans give preference to “large infrastructure projects like building dams and electric plants over projects that would benefit the poor, such as education and basic health care.” The projects often destroy the local environment, including forests, rivers, and fisheries. Some estimates suggest “that more than two and a half million people have been displaced by projects made possible through World Bank loans.” Failed projects, argue environmentalists and antiglobalization groups, are particularly illustrative: “The Sardar Sarovar dam on the Narmada River in India was expected to displace almost a quarter of a million people into squalid resettlement sites. The Polonoroeste Frontier Development scheme has led to large-scale deforestation in the Brazilian rain forest. In Thailand, the Pak Mun dam has destroyed the fisheries of the Mun River, impoverishing thousands who had made their living fishing and forever altering the diet of the region.” Encyclopedia of the New American Nation , s. v., “International Monetary Fund and World Bank—World Bank Critics on the Right and Left,” accessed June 29, 2018, americanforeignrelations/E-N/International-Monetary-Fund-and-World-Bank-World-bank-critics-on-the-right-and-left. html. Further, the larger projects become targets for corruption by local government officials because there is so much money involved.
Another example was in 2009, when an internal audit found that the IFC had “ignored its own environmental and social protection standards when it approved nearly $200 million in loan guarantees for palm oil production in Indonesia…Indonesia is home to the world’s second-largest reserves of natural forests and peat swamps, which naturally trap carbon dioxide—the main greenhouse gas that causes climate change. But rampant destruction of the forests to make way for palm oil plantations has caused giant releases of CO 2 into the atmosphere, making Indonesia the third-largest emitter of greenhouse gases on the planet…‘For each investment, commercial pressures were allowed to prevail,’ auditors wrote.” Lisa Friedman, “How the World Bank Let ‘Deal Making’ Torch the Rainforests,” New York Times , August 19, 2009, accessed February 9, 2018, nytimes/cwire/2009/08/19/19climatewire-how-the-world-bank-let-deal-making-torch-the-33255.html. However, such issues are not always as clear-cut as they may seem. The IFC responded to the audit by acknowledging “shortcomings in the review process. But the lender also defended investment in palm oil production as a way to alleviate poverty in Indonesia. ‘IFC believes that production of palm oil, when carried out in an environmentally and socially sustainable fashion, can provide core support for a strong rural economy, providing employment and improved quality of life for millions of the rural poor in tropical areas,’ it said.” Lisa Friedman, “How the World Bank Let ‘Deal Making’ Torch the Rainforests,” New York Times , August 19, 2009, accessed February 9, 2018, nytimes/cwire/2009/08/19/19climatewire-how-the-world-bank-let-deal-making-torch-the-33255.html.
Opportunities and Future Outlook for the World Bank.
As vocal as the World Bank’s critics are, so too are its supporters. The World Bank is praised by many for engaging in development projects in remote locations around the globe to improve living standards and reduce poverty. The World Bank’s current focus is on helping countries achieve the Millennium Development Goals (MDGs), which are eight international development goals, established in 2000 at the Millennium Summit, that all 192 United Nations member states and twenty-three international organizations have agreed to achieve by the year 2018. They include reducing extreme poverty, reducing child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development. The World Bank is focused on the following four key issues:
Increased transparency. In response to the criticisms over the decades, the World Bank has made progress. More of the World Bank’s decision making and country assessments are available publicly. The World Bank has continued to work with countries to combat corruption both at the country and bank levels. Expanding social issues in the fight on poverty. In 2001, the World Bank began to incorporate gender issues into its policy. “Two years later the World Bank announced that it was starting to evaluate all of its projects for their effects on women and girls,” noting that “poverty is experienced differently by men and women” and “a full understanding of the gender dimensions of poverty can significantly change the definition of priority policy and program interventions.” Robert J. Brym et al., “In Faint Praise of the World Bank’s Gender Development Policy,” Canadian Journal of Sociology Online , March–April 2005, accessed May 23, 2018, cjsonline. ca/articles/brymetal05.html. Improvements in countries’ competitiveness and increasing exports. The World Bank’s policies and its role as a donor have helped improve the ability of some countries to secure more of the global revenues for basic commodities. In Rwanda, for example, reforms transformed the country’s coffee industry and increased exports. Kenya has expanded its exports of cut flowers, and Uganda has improved its fish-processing industry. World Bank efforts have also helped African financial companies develop. Shanta Devarajan, “African Successes—Listing the Success Stories,” Africa Can…End Poverty (blog), The World Bank Group, September 17, 2009, accessed May 23, 2018, blogs. worldbank/africacan/african-successes-listing-the-success-stories. Improving efficiencies in diverse industries and leveraging the private sector. The World Bank has worked closely with businesses in the private sector to develop local infrastructure, including power, transportation, telecommunications, health care, and education. Shanta Devarajan, “African Successes—Listing the Success Stories,” Africa Can…End Poverty (blog), The World Bank Group, September 17, 2009, accessed May 23, 2018, blogs. worldbank/africacan/african-successes-listing-the-success-stories. In Afghanistan, for example, small dams are built and maintained by the locals themselves to support small industries processing local produce.
The World Bank continues to play an integral role in helping countries reduce poverty and improve the well-being of their citizens. World Bank funding provides a resource to countries to utilize the services of global companies to accomplish their objectives.
Key Takeaways.
The IMF is playing an expanding role in the global monetary system. The IMF’s key roles are the following:
To promote international monetary cooperation To facilitate the expansion and balanced growth of international trade To promote exchange stability To assist in the establishment of a multilateral system of payments To give confidence to members by making the IMF’s general resources temporarily available to them under adequate safeguards To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members The World Bank consists of two main bodies, the IBRD and the International Development Association (IDA).
The World Bank Group includes the following interrelated institutions:
IBRD, which makes loans to countries with the purpose of building economies and reducing poverty IDA, which typically provides interest-free loans to countries with sovereign guarantees International Finance Corporation (IFC), which provides loans, equity, risk-management tools, and structured finance with the goal of facilitating sustainable development by improving investments in the private sector Multilateral Investment Guarantee Agency (MIGA), which focuses on improving the foreign direct investment of the developing countries International Centre for Settlement of Investment Disputes (ICSID), which provides a means for dispute resolution between governments and private investors, with the end goal of enhancing the flow of capital.
(AACSB: Reflective Thinking, Analytical Skills)
What is the IMF, and what role does it play? What are two criticisms of the IMF and two of its opportunities for the future? Discuss whether SDRs or another global currency created by the IMF should replace the US dollar as the international reserve currency. What is the World Bank, and what role does it play? What are two criticisms of the World Bank and two of its opportunities for the future?
6.3 Understanding How International Monetary Policy, the IMF, and the World Bank Impact Business Practices.
Objetivos de aprendizado.
Understand how the current monetary environment, the IMF, and the World Bank impact business. Explore how you can work in the international development arena with a business background.
How Business Is Impacted by the Current Monetary Environment, the IMF, and the World Bank.
All businesses seek to operate in a stable and predictable environment. International businesses make efforts to reduce risks and unexpected issues that can impact both operations and profitability. The global monetary system in essence provides a predictable mechanism for companies to exchange currencies. Global firms monitor the policies and discussions of the G20 and other economic organizations so that they can identify new opportunities and use their leverage to protect their markets and businesses.
Você sabia?
There’s even an annual forum that the world’s largest businesses attend with senior government officials from around the world and leaders of thought on economic, social, and political issues. The five-day meeting is known more commonly as Davos, in reference to the Swiss town in which it is held. Attendees must be invited; the price tag is rather hefty at about $50,000, but the meeting attracts the world’s business and political elite. Davos is run by the World Economic Forum (weforum/en/index. htm). The event started in 1971 as the brainchild of Swiss economics professor Klaus Schwab. Originally it served as a small, private, and discreet way of bringing business and political leaders together to establish common ground and objectives. It has since grown exponentially in size and influence and now attracts media and celebrities—but still only by invitation.
The Bretton Woods Institutions have extensive global influence and occasionally use it to nudge countries to reduce trade barriers and adjust the value of their currency. One recent example involves the International Monetary Fund (IMF) and China. A July 2018 report from the IMF stated that China’s trade surplus will increase unless the government takes steps to increase more domestic consumption by the Chinese and also by letting the Chinese currency, the renminbi Official name of the Chinese currency. Yuan is the main unit of the currency. , appreciate or increase in value. Andrew Batson, “IMF Report Urges China to Consume More,” Wall Street Journal , July 30, 2018, accessed February 9, 2018, online. wsj/article/SB10001424052748703578104575396953580078456.html. China’s export machine has been fueled in large part by the low value of the renminbi, as set and maintained by the government. Letting it currently trade with reduced or no government intervention would likely reduce the country’s massive exports. “Both the IMF and China’s government agree [that China] still depends too much on exports. Supporting domestic consumption instead ‘will reduce China’s reliance on external demand and better insulate the economy from shocks in overseas markets,’ the IMF said. China gave domestic demand an enormous boost with its stimulus program to combat the effects of the financial crisis, resulting in a surge in imports of raw materials and equipment to feed a construction boom.” Andrew Batson, “IMF Report Urges China to Consume More,” Wall Street Journal , July 30, 2018, accessed February 9, 2018, online. wsj/article/SB10001424052748703578104575396953580078456.html.
While the IMF can only issue a report, action is completely at the discretion of the country’s government. However, for global businesses, this can be encouraging in several ways. In this case, companies that are eager to enter the Chinese market to sell their goods and services may find it easier or the general climate more welcoming of foreign businesses. Second, if the renminbi increases in value, the Chinese can purchase more goods and services from overseas firms. On the flip side, companies that compete with Chinese firms in other markets may be frustrated by China’s cheap costs and undervalued currency. If the Chinese currency increases in value, Chinese exports will become more expensive, allowing other companies to compete more effectively against Chinese firms. These are just a couple of simple scenarios, but they illustrate the range of issues and concerns that China may have with the IMF report and the opportunities that may arise for global businesses. IMF reports are based on years of research, and it’s rare that markets, countries, and businesses are not already aware of the issues in any report. However, by actually releasing the report, the IMF is officially prioritizing and legitimizing the concerns. In this case, the initial report from the IMF was ready for release in 2006, but China effectively blocked the release until some changes were made. It was finally released in July 2018. The impact of the report will take several years to unfold. However, already in early 2018, China announced its intentions to let the renminbi begin to trade more freely. “The People’s Bank of China…is pushing for a greater role for the renminbi in global trade and investment so that China can reduce its almost total reliance on the US dollar.” “Singapore Aims to Be a Renminbi Hub,” Financial Times , April 19, 2018, accessed May 7, 2018, ft/cms/s/0/64bac520-6a4f-11e0-a464-00144feab49a. html#ixzz1LgVcCJKM. Recent efforts have included allowing for individuals and institutions to buy the renminbi outside of China and also to permit select trading of the currency in other countries, such as Russia and Singapore, as well as in its own territory of Hong Kong. The Chinese government hope is that by internationalizing the currency, it will eventually will be perceived as a reserve currency, a key component of its ambitions to be a global power. Wieland Wagner, “China Plans Path to Economic Hegemony,” Spiegel Online International , January 26, 2018, accessed May 7, 2018, spiegel. de/international/business/0,1518,741303,00.html.
Working in the International Development Arena with a Business Background.
Why would international businesses care about quasi-government institutions such as the World Bank and IMF? The opening case discusses how a management consulting firm links businesses, governments, and global institutions by advising on policy and strategy. What many people don’t realize at first glance is that the global business in the private sector is heavily impacted by the IMF, the World Bank, and other development organizations.
Many of the projects that the World Bank Group funds in specific countries are put up for competitive bidding by the government of the country receiving the funds; the projects are then managed by a government department. However, global companies in the private sector almost always carry out the actual work. Hence there is a vast industry focused on obtaining these often lucrative and secure contracts. The World Bank has worked hard to increase transparency in the bidding process and to closely monitor and audit how its monies are spent.
Let’s look at some of the companies and industries that get involved in World Bank projects. Consulting companies, particularly the large global firms—McKinsey, BearingPoint, and PricewaterhouseCoopers (PwC), for example—are high-profile examples of firms that actively solicit projects from the World Bank and other development organizations. Their capabilities range across diverse industries, from finance and regulation to project management and auditing of infrastructure development. Engineering, chemical, and telecommunications firms also have departments that solicit and bid on World Bank projects.
These firms routinely hire people with business degrees. Those with additional qualifications in foreign languages or technical skills have increased chances of being hired. So how do you find out which companies are getting contracts? Try the following method:
Start by looking at the Devex site. While it’s the biggest and best-known website resource for development work, there are others. Explore organizational training programs, such as the World Bank’s Young Professionals Program, which is designed for highly qualified, experienced, and motivated individuals (under the age of thirty-two) who are skilled in areas relevant to the World Bank’s operations, such as economics, finance, education, public health, social sciences, engineering, urban planning, and natural resource management. Research the World Bank site and sites of the other institutions in the World Bank Group to identify which firms are winning bids; then apply to those firms. In an effort to combat the ethics issues, each of these organizations now requires complete transparency in contract awards and has sections where you can search. For example, use the following link for the World Bank contractors search: web. worldbank/wbsite/external/projects/0,,menuPK:51565.
theSitePK:40941,00.html. Read the Economist , the Wall Street Journal , and other global business publications to learn more about projects, loans, and activities of the World Bank, private sector firms, and countries. Many of these publications have job ads. Even if it is for more senior positions, you can learn which companies are working in which sectors and countries.
Key Takeaways.
Businesses seek to operate in a stable and predictable environment by reducing risks and unexpected issues that can impact both operations and profitability. Global firms monitor the policies and discussions of the G20 and other economic organizations so that they can identify new opportunities and use their leverage to protect their markets and businesses. Global business in the private sector is heavily impacted by the IMF, the World Bank, and other development organizations. Many of the projects that the World Bank Group funds in specific countries are managed by the local governments, but the actual work is typically done by a private sector firm.
(AACSB: Reflective Thinking, Analytical Skills)
Why are the World Bank and the IMF relevant for global businesses? What types of entities carry out the projects funded by the World Bank?
6.4 Tips in Your Entrepreneurial Walkabout Toolkit.
Are You Interested in Jobs in the Development Arena?
Check out dedicated websites like Devex (devex/en/). Devex began as a student project at Harvard University’s Kennedy School of Government in 2000. Today, Devex is the largest provider of business intelligence and recruitment services to the development community; it serves a majority of the world’s leading donor agencies, companies, NGOs, and development professionals. Devex is the main source of business information related to foreign assistance, including tenders, project information, business advice, and news from the World Bank, UNDP, USAID, DFID, ADB, and more.
You can also try DevNet (devnetjobs), which lists available jobs, and Eldis (eldis), which is a resource for development research, jobs, and industry and country information.
6.5 End-of-Chapter Questions and Exercises.
These exercises are designed to ensure that the knowledge you gain from this book about international business meets the learning standards set out by the international Association to Advance Collegiate Schools of Business (AACSB International). Association to Advance Collegiate Schools of Business website, accessed January 26, 2018, aacsb. edu. AACSB is the premier accrediting agency of collegiate business schools and accounting programs worldwide. It expects that you will gain knowledge in the areas of communication, ethical reasoning, analytical skills, use of information technology, multiculturalism and diversity, and reflective thinking.
Experiential Exercises.
(AACSB: Communication, Use of Information Technology, Analytical Skills)
Research the G20 at its website, g20. Identify the current priorities and focus of the organization. Based on what you have learned about the history of the international monetary system and recent events and changes, do you agree with the current focus? What would you change? Select a large global consumer products or manufacturing company to work for. Review the sidebar on General Motors in Section 6.1 "What Is the International Monetary System?". You are a member of your company’s postwar planning policy group. Review the conflict in Iraq. What would you recommend to your senior management about local prospects for your company in the country and region? Identify two countries, one in Africa and one in either Asia or Latin America. Research each country’s history with the IMF and the World Bank. Has the country accepted loans from either organization? What were the terms of the loans? Discuss whether the loans achieved the initial purpose and whether the country is better or worse off as a result of working with these institutions. Have the loans helped expand the prospects for businesses, local and multinational?
Ethical Dilemmas.
(AACSB: Ethical Reasoning, Multiculturalism, Reflective Thinking, Analytical Skills)
This chapter reviews how the World Bank has dealt with charges of corruption and transparency in the past. It also discusses how many global firms seek to do business for World Bank-funded projects. Imagine you are the director of global business development for a large Swedish engineering company that wants to win the contract to build roads in Kenya through a World Bank–funded project. You need to develop a relationship with the Ministry of Transportation in Kenya. Using what you learned in this chapter, discuss how you would handle a situation in which your firm wants to win the contract but has been directly asked for a bribe by a local official in charge of the decision making. Imagine that your competitors are from other countries, some of which are less concerned about the ethics of gift giving as this book has defined it. How can you still win business in such a situation? What would you advise your senior management? Imagine that you are a consultant for McKinsey & Company, and you are assigned to the team advising Walmart on selecting and entering new markets in Africa and Latin America. You were also recently a member of the team that advised the United Nations on a new strategy for the Global Compact, which is covered in Chapter 5 "Global and Regional Economic Cooperation and Integration". How would you link these two consulting projects, and how might it impact the advice you give to Walmart? Would there be any areas of ethical conflict if you shared information on the Global Compact to the benefit of Walmart? Discuss whether any benefits would accrue to the Global Compact.

Sistema Monetário Internacional.
International monetary system refers to a system that forms rules and standards for facilitating international trade among the nations.
It helps in reallocating the capital and investment from one nation to another.
It is the global network of the government and financial institutions that determine the exchange rate of different currencies for international trade. It is a governing body that sets rules and regulations by which different nations exchange currencies with each other.
With the growing complexity in the international trade and financial market, the international monetary system is necessary to assign a standard value of the international currencies. The rules and regulations set by the international monetary system to regulate and control the exchange value of the currencies are agreed upon by the respective governments of the nations. Thus, the government’s stand may affect the decision making of the international monetary system. For example, change in the trade policy of a government may affect the international trade of goods and services.
International monetary system motivates and encourages the nations to participate in the international trade to improve their BOP and minimize the trade deficit. It has grown over the years as a single architectural body with a vision to integrate the global economy. Some of the important achievements of the international monetary system over the years have been the establishment of World Bank and International Monetary Fund in the year 1944.
The establishment of IMF and World Bank is the result of the agreement among nations to set a body, which promotes and supports the international trade. Now, let’s discuss the evolution of international monetary system. Earlier in 1870 to 1914, trade was carried with the help of gold and silver without any institutional support. At that time, monetary system was decentralized and market based and money played a minor role as compared to gold in international trade.
The use of gold declined after World War I as war increased expenditure and inflation. In such a scenario, countries planned to revive the standard of gold but failed due to great depression. Thus, in 1944, 730 representatives of 44 nations met at Bretton Woods, New Hampshire, United States to create a new international monetary system.
This was called as the Bretton Woods system, which became a turning point in the history of international trade. The aim of new international monetary system is to create a stabilized international currency system and ensure a monetary stability for all the nations.
It was decided that since the United States held most of the world’s gold, thus all the nations would determine the values of their currencies in terms of dollar. The central banks of nations were given the task of maintaining fixed exchange rates with respect to dollar for each currency.
The Bretton Woods system ended in 1971 as the trade deficit and growing inflation undermined the value of dollar in the whole world. In 1973, the floating exchange rate system, also known as flexible exchange rate system was developed that was market based.
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International trade monetary system

WTO NEWS: SPEECHES — DG PASCAL LAMY.
& gt; Literature survey on the relationship between exchange rates and trade (WT/WGTDF/W/57)
I am happy to open this seminar which is aimed at fostering dialogue and improving members’ understanding of the economic interface between exchange rates and trade.
During these two days, WTO members will be able to explore and discuss various dimensions of that relationship seen from different angles, whether from the private sector, governments, international organizations or academia.
For a number of reasons, members wanted this debate; I think that, from an institutional perspective, we even need it. The topic is as old as the GATT/WTO system itself, but it has not been discussed within these walls in a long time.
It has to be approached, like the Working Group decided, on the basis of a rational, educative, and fact-based discussion. Reality has to be distinguished from emotions that inevitably arise on this topic, as much here as in other institutions.
In areas where trade intersects with other policies, as is the case with today’s topic, policy-makers should take advantage of our introspection to increase their awareness about the trade impact of their decisions. In this sense, this policy dialogue should lead to a more holistic reflection about how to improve the coherence of financial and trade policies, a message that this institution has carried consistently throughout its history and texts. The presence today of many representatives of non-trade institutions is important in this regard.
Let me develop a few thoughts along these lines.
Realities and perception.
Exchange rates are, and have always been, a highly sensitive subject in the WTO. There is an emotional, cultural — if not moral — dimension attached to it by the trade community, in which the line between reality and perception can become blurry.
This is in part because our community has a limited grasp of the workings of the financial system, and more widely of macroeconomic developments that determine exchange rates. This is also because, as exchange rates are exogenous to traders, some may feel that they are systematically on the receiving end of unwarranted fluctuations. I appreciate the uncertainty associated with some erratic movements of exchange rates can be not only a source of frustration, but also of asymmetric costs, which can distort international competition.
Think about the abruptness of local financial crises and how short-term capital flights may spill over into brutal adjustment of exchange rates — a phenomenon observed during the Asian financial crisis of the late 1990s. For small or medium-sized economies, these are enormous shocks to absorb. After the recent financial crisis, the sense that the financial sector adjustment in rich economies is destructive for real economies, including that of poorer countries, is very vivid in this institution. Exchange rates are perceived to have been a transmission channel of these shocks.
These concerns have to be acknowledged, even though at times some of them may fall foul of exaggeration.
However, one should not descend into victimization or moral judgements: exchange rate adjustments are not all evil in themselves; in fact, they often correct macroeconomic, financial or current account imbalances, the persistence of which would be of even greater cost to traders. Trade also brings its well-acknowledged overall benefits to the cost of sometimes painful adjustments; and prices of tradables can be volatile in their own right too. Just consider fluctuations in commodity prices.
So, part of our sensitivity is that the time perspective of exchange rate markets is different from that of real economy producers and traders, who tend to base their own decisions on longer-term parameters, i. e. those governing investment, product development, and exports. This time perspective means that traders have a natural preference for stability and predictability of their policy environment.
Part is also engrained in history, from the gloom and doom of pre-World War II developments, when uncooperative exchange rate depreciations were associated with unilateral protectionist responses to economic depression, mass unemployment, the rise of populism and dark political developments.
The need for a rational debate.
The raison d’être of this seminar is to examine the subject in a rational way, and avoid finger-pointing and frustration, which can only influence ill-designed trade policy responses. As often in life, one stands where one sits. One tends to hear more complaints from industries in countries where currency appreciates than from countries where currency depreciates. In a world of global supply chains and an increasing share of imports in exports, one can guess that traditional effects of currency appreciation and depreciation are in part cushioned. Besides, history tells us that at different times, countries may be on both sides of the currency fluctuation spectrum, appreciating at one time and depreciating at another.
The literature survey produced by the Secretariat last year provides some answers to the relationship between exchange rates and trade.
The survey says that, on average, exchange rate volatility has a negative, even if not very large, impact on trade flows. Exchange rate volatility increases commercial risk, introduces uncertainty costs, and can influence the decision whether or not to enter foreign markets. In other words, volatility may affect resource allocation. The extent of these effects depends on a number of factors, including the existence of hedging instruments, the structure of production (e. g. the prevalence of small firms), and the degree of economic integration across countries. For example, it is well reported that exporting firms having access to hedging instruments might be less “sensitive” than those which are subject to external exchange rate fluctuations. As I have already mentioned, the impact of exchange rate fluctuations is also reduced by the presence of imported inputs, which offset the effect of exchange rate changes on the pricing of exports.
To take this further, a firm which has only one export market and whose export earnings depend on bilateral exchange rates is likely to be more affected than firms that are present in global markets (where upwards and downwards movements of various exchange rates may cancel each other out). Global firms also have the possibility of invoicing in local currency, and the capacity to absorb losses due to exchange rate changes and other factors in profit margins.
All in all, the most “sensitive” firms seem not to be the large ones, but rather the smaller ones. In addition, empirical studies tend to find a more significant effect mainly in the case of trade with close neighbours, in particular in the case of very integrated economies. For example, the 2004 IMF study clearly indicates that exchange rate volatility within the European Union, before the advent of the euro, had a significant impact on relative prices of members.
Exchange rate misalignments, i. e. sustained deviations of nominal exchange rates from their equilibrium value, are also predicted to have short-run effects in models with price rigidities. But the exact impact is not straightforward and depends on the specific characteristics of the economy. This includes, inter alia, the currency in which domestic producers invoice their products and the structure of trade (for example, the prominence of global production networks). On the empirical side, the complexity of the relationship between exchange rate misalignments and trade yields has mixed findings — it is not always clear that misalignments change the system of relative prices of an economy, at least long enough and deep enough to be able to shift resources or have quantity effects.
For instance, a currency undervaluation is sometimes found to have a positive impact on exports, but the presence, size and persistence of these effects are not consistent across different studies. These effects, when they exist, are predicted to disappear in the medium to long-run, unless some other distortion characterizes the economy.
The policy lessons: a need for greater policy coherence.
Trade needs exchange rate stability.
The problem for business is one of excess volatility — i. e. when exchange rates behave in a disorderly way, and do not adjust to economic fundamentals. Part of the international trading community found in the Bretton-Woods era is a system of orderly adjustment of real exchange rates. The system, though not ideal, was maintained. But there was a system, providing for a sense of organized governance in the international monetary system. This is what we lack today.
Exchange rates are not a new issue for the GATT/WTO.
The IMF and GATT were created in response to a lack of coordination of economic policies during the Great Economic Depression — these new institutions aimed at dealing with trade and exchange rate policies as a matter of common interest, with the introduction of disciplines to avoid competitive devaluations, maintain exchange rate stability, reduce balance of payments crises, and fight protectionism. The international monetary and trading systems were linked from the outset by a coherent set of rules aimed at the progressive liberalization of trade and payments.
GATT Article XV required members to cooperate with the IMF on questions relating to freedom or restrictions concerning exchange and trade. Members are required not to frustrate the intent of the GATT provisions through exchange actions, nor to undermine the provisions of the IMF Article of Agreements through trade actions.
GATT provisions reflected two things: (1) the attachment of the trade community to exchange rate stability; (2) the need for that community to ensure that the trading system is not frustrated by the undisciplined use of exchange restrictions or multiple exchange rates.
These provisions are still part of our rule book. But they have not been interpreted and thus what they mean today, in a WTO and non-Bretton Woods context, remains to be tested. However, the institutional set-up remains very much one of coherence — and not of conflict — between the two systems.
Since the end of the Bretton Woods system, the trading community has consistently asked for greater exchange rate stability and proper adjustments of balance of payments. This was already the case in the 1973 Ministerial Declaration at the opening of the GATT Tokyo Round, as much as in 1994, 20 years later, in the Ministerial Declaration on the Contribution of the WTO to Greater Coherence in Global Economic Policy Making.
Trade policy alone cannot be the answer.
Reading again the 1994 text, I am struck by the authors’ sabedoria. It emphasizes on the one hand, (I quote) that “greater exchange rate stability, based on more orderly underlying economic and financial conditions, should contribute towards the expansion of trade, sustainable growth and development, and the correction of external imbalances”; on the other hand, Ministers “recognized, however, that difficulties the origins of which lie outside the trade field cannot be redressed through measures in the trade field alone” .
This says that an international monetary system aimed at greater exchange rate stability and correcting imbalances helps expand trade. At the same time, trade measures cannot correct policy imbalances elsewhere, and be an answer to non-trade policy concerns. Tit-for-tat trade measures would be a recipe for protectionist crossfire.
Clearly, with the exception of currency traders, erratic movements of exchange rates are an irritant in today’s trading system. One must acknowledge their influence in trade policy setting, though, not least because exchange rate shifts may increase or weaken the desired or perceived level of protection of domestic operators. Maintaining multilaterally agreed levels of border protection is certainly a legitimate trade policy objective. The desired levels of protection are negotiated by members through long-term commitments — precisely because policies need to set predictable conditions of access for producers and traders.
At the same time, one may wonder whether long-term levels of protection need to be adjusted to short-term fluctuations or even misalignments of exchange rates. As the literature survey seems to indicate, exchange rates may have an influence only in the short-run, not in the long-run unless there are substantial market failures. It leads to the question as to whether long-term border protection should not be considered in the light of the longer-term developments of exchange rates rather than short-term developments.
The WTO system cannot solve it all.
This is why the international community needs to make headway on the issue of reform of the international monetary system. Unilateral attempts to change or to retain the status quo will not work. We need an international monetary system which supports cross-border investment and a better allocation of capital across nations and which “facilitates international trade” & mdash; as laid out in the aims of the International Monetary Fund.
What we need is a global monetary system which inspires confidence, offers stability and monitors exchange rates more efficiently. One which provides the means through which global imbalances that may risk endangering stability can be addressed.
Trade cannot become the scapegoat for the pitfalls and drawbacks of the international monetary system, or current non-system. The WTO system, its policies and rules will not be able to solve macroeconomic issues at the heart of the performance of currencies worldwide. WTO rules will not fix consumption or saving patterns at home, they will not solve competitiveness issues of domestic industries, they will not determine domestic interest rates, they will not achieve proper prudential supervision in the financial system.
All these issues require a mix of cooperation in the macro-financial field and proper domestic policies which lie outside the remit of the WTO. In the current volatile environment, we need to make sure that the WTO system does not crumble under the weight of excessive expectations.
Let us take the opportunity of the next two days, in a constructive and rational way, to increase our knowledge, exchange our mutual policy experiences, and understand better the borders of trade and financial policies. To achieve this through this seminar will be a step in the right direction.

School of Law.
18 de maio de 2018.
Attendance by invitation only.
Professor Rosa Lastra, Centre for Commercial Law Studies, convened an elite group of experts drawn from the fields of economics & finance, financial law and international trade law to discuss the future of the international monetary and financial system, from the perspective of its relationship with the international trading system, in particular the lessons from the institutional architecture of WTO, its global rules on trade and its dispute settlement system.
The meeting, which followed a Symposium organised by Professor John Jackson, widely regarded as the father of international trade law and one of the fathers of WTO, Professor Thomas Cottier and Professor Lastra, aimed to establish a meaningful dialogue between law and economics on the one hand, and international trade and international finance on the other hand. The recent address by Pascal Lamy: "We need an international monetary system which facilitates international trade"provides interesting reflections.
The future of global finance as we know it is at stake. We either retrench back to national markets or establish an appropriate rule-based system for international finance. Whether a WTO-like solution in finance would do better at playing the 'Sentinel' role (in the words of Ross Levine) than the current FSB 'peer review' exercises is an issue which must be discussed. And the role of the IMF should be.