Started on: 2/6/14 9:40AM
C LASS N OTES FOR : P OLI S CI 2J03
McMaster University, Winter 2014
M ONDAY , FEBRUARY 10, Y
IMS from fixed to floating and regional currencies
Private and public credit
Historical origins of the Modern System
- Bretton Woods system
- System that would underpin financial stability
- New Hampshire 1944
- Set arrangements for IMS, Credit system
o It was supposed to ensure economic growth!
- Creation of the IMS, Dollar exchange standard and the World Bank
- The IMS was created to try and help / underpin the international monetary system
o It would lend country’s money on a short-term basis!
o Would lend some money until obtaining some stability
- WORLD BANK
o Would lend money to countries on a long term basis
o Originally it was set to help with the reconstruction of Europe
o Developing countries also lobbied for money and so it was extended into the developing
- Western countries committed themselves to support free trade and open economies
- System, which governs the exchange of currencies
- If you are going to have a global economy and international trade, there has to be some kind of
functioning international monetary system
- There has to be access to what is being sold and traded, etc.
- Problems with gold standard, inter-war system
o We’ve never designed the ‘perfect’IMS
o Any system we’ve had has generated problems and issues
o It keeps changing overtime!
- In the 1800s there was the gold standard.
o Allowed good to be sold between countries but did not allow economic growth
- Interwar period (WWI and WWII)
o Chaotic international monetary system.
- It is always a problem that is being negotiated
o After the second world there’s a new attempt at an international monetary system
o Gold exchange standard
o “Dollar” exchange standard
(1) The Americans to fix their value of their currency to gold
• Acertain amount of gold
(2) Currencies linked to the American dollar at a particular rate
Angie © McMaster University 1
Winter 2014 • All other currencies could be adjusted to the American dollar
• Canadian dollar at par with theAmerican dollar - bad for manufacturing
o Stable and flexible
It allowed for changes overtime
The way it was designed was seen to bring all of the benefits of different kinds of
monetary systems in this particular arrangement
o The IMF was created as an institution to help with short term issues
o Triffin’s dilemma
Triffin was anAmerican economist and looked at the system and said there was a
• American dollar was tied to Gold, but the Americans were spending huge
amounts of money. Alot of money was flowing out of the United States,
since American companies were investing in other parts of the world.
• As American dollars float out into the system there was concern that there
will be more American dollars outside of the USA, then there was gold
inside the United States.
• Tension between the flow of money outside of the United States versus
the amount of gold that it had to back its currency.
- System which governs the provision of loans
- Credit, loans, etc.
- All of the countries devastated by the world need money for rebuilding
o International Bank for Reconstruction and Development (IBRD) “World Bank”
o Reconstruction for Europe and Japan and development!
- Since economies were devastated, could not buyAmerican goods.
- The bank did not actually have enough money
- MARSHAL PLAN
o 13 Billion in Grants
o Congress spooked by communism
o Excluded communist states, helped Euro integration
o Countries like France and Italy might become communist in response to economic