Textbook Notes (362,820)
Canada (158,064)
POLI 354 (26)
Chapter 20

Power Money and Trade - Chapter 20

8 Pages
Unlock Document

McGill University
Political Science
POLI 354
Mark Brawley

Chapter 20 The Collapse of the Bretton Woods Monetary Regime November 22 2010Bretton Woods in Operation y Goals of Bretton Woods systemo Achieve orderly balance of payments adjustment system provide adequate liquidity for international trade facilitate private international investment and stabilize financial markets by limiting speculative flows maximize effectiveness of domestic monetary and fiscal policiesy Supported by US economic and political strength dollar primary medium of international payment primary reserve asset and primary currency used by governments to intervene in exchange markets to stabilize value of own currency y US dollar also national currency thus had two separate set of goals domestic goals vs systems requirements not conflictual during Bretton Woods y US allowed foreigners to increase holdings of dollars wanted them to be able to pay for US exports and also did not want gold to flow out of USo Confidence in dollar high demand soaredo US firms used dollars to purchase assets abroady US policy provided enough international liquidity to support resurrection of commerce and also expansion of international trade and investment Dollar abroadincrease in world liquidity The Emergence of the Dollar Overhangy Dollar shortage of 1950s required implementation of policy to get dollars into world economy despite underlying economic conditions driving US to a certain balance of payments surplus 1 Foreign aid Ie Marshall Plan 2 Increased military expenditures outside of USIe Counter Soviet Korean War 3 Foreign direct investment y Dollar principal reserve asset held by others US could control international monetary supply y US dominated voting within IMF and ran things differently than rules dictated o Convertibility of European currencies suspended from 4758NonIMF policies linked to exchange rate adjustments Ie Marshall Plan money linked to currency devaluations o US took several measures such as pushing for devaluations to get other countries to discriminate against US goods so that other countries might gain more dollars through foreign exchangey By 1958 convertibility reinstituted among economically advance countries and these countries could earn enough dollars through regular channels that US didnt have to run things by itself anymorey Some instabilities still US policies of running a balance of payments deficit continued o Cold War US military aid foreign expenditures Vietnam Waro Dollar shortage by late 60s y How to overcome balance of payments deficit o Back out of Cold Warnot likely o Turn it into surplus by deflating US economyhowever European growth driven by US demand so slow down US market would have slowed down growth of largest sport market too so stay in deficit o Devalue dollarproblematic because many countries held dollars as primary reserve asset automatically affect other currencies values devaluation sign of weakness and bad psychologically for investorsy US continued to run deficits obvious more dollars in circulation than could be converted into goldin foreign exchange markets after return of y Related problem was increasing amount of speculationconvertibility in 1958
More Less

Related notes for POLI 354

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.