POST-WAR ECONOMICS 187
See also: Comparative advantage 80–85 ■ Depressions and unemployment
15 4 – 61 ■ Market integration 226–31 ■ International debt relief 314–15
After World War II, the Allied
powers turned to the question of
post-war economic reconstruction.
A conference was held in June, 1944,
at Bretton Woods, New Hampshire,
where delegates agreed to a US plan
to peg currencies against the dollar.
The dollar, in turn, was to be
maintained by the US government
at a fixed rate of exchange with
the price of gold.
This system was overseen by a
new International Monetary Fund
(IMF), which would be responsible
for providing emergency funding,
while the International Bank for
Reconstruction and Development
(now part of the World Bank group)
was established to provide funding
for development projects. In 1947, a
General Agreement on Tariffs and
Trade (GATT) aimed to rebuild
international trade. Together these
new organizations sought to renew
economic cooperation among
nations, the lack of which had
been so costly between the wars.
This system held for nearly
30 years of exceptional economic
growth, but it was structurally
flawed. Continuous US trade deficits
(where imports exceed exports)
helped keep the system working,
but dollars flooded abroad until
the stockpiles exceeded US gold
reserves, pushing the price of
gold in dollars above the fixed price
of gold. As US government
expenditure increased, the strain
worsened. In 1971, President Nixon
suspended the dollar–gold link,
ending the Bretton Woods system. ■In the wake of
war and depression,
nations must
cooperate.The gold standard
forced fixed exchange
rates on the world.This came under strain after
World War I and as countries
went into recession.But without
cooperation nations
devalue currencies to promote
exports and impose
trade restrictions.The system collapsed
and cooperation between
nations ended.This shrinks the world
market, and everyone
becomes worse off.The International
Monetary FundCreated by the Bretton Woods
agreement, the International
Monetary Fund (IMF) is
today one of the world’s most
controversial international
bodies. It was established
initially as an emergency fund
for countries experiencing
financial difficulties arising
from balance of payments
deficits, debt crises, or often
both. More than 180 member
countries contribute toward
a central fund, depending on
the size of their economy, and
they can apply for cheap loans
from that fund. When the
Bretton Woods fixed-exchange
system was abandoned in
1971, the IMF’s role changed.
It began to impose strict
conditions on its loans. Since
the late 1970s these were
heavily influenced by neoliberal
ideas (pp.172–77), which
advocated privatization and
cutting government spending.
Economists have criticized
the IMF for making crises
worse, such as the East Asian
crisis of the late 1990s.Traders watch as the crisis
caused by the collapse of the Thai
baht spreads across Asia in 1997.
The Thais had given in to pressure
from the IMF to float the baht.