Issues of International Finance in Developing Countries The Bretton Woods Institutions and International Financial Support for Public and Private Sector Activities
Up to the Middle of the 19th Century, international finance was surviving with flexible exchange rates and rather informal markets. Then England introduced the Gold Standard and other countries followed suit up to WW I. After the breakdown of world trade and finance during the Great Depression and WW II, the rebuilding of the international financial infrastructure started with the creation of the Breton Woods Institutions, which have been responsible for worldwide liquidity, exchange rates and macroeconomic monitoring (IMF) and project and program financing of reconstruction and development (World Bank Group). Other institutions supporting worldwide financial rules and regulations include the Bank for International Settlements (BIS), The London and Paris Club of Creditor and Debtor countries and more recently the World Trade Organization (WTO).
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World War I and its aftermath of continued distrust and virulent nationalism, as well as the decline of the dominant international power of the UK weakened that system. Countries wanted to determine their own macroeconomic policies in general and their monetary policies in particular without interference of foreign markets with the result that foreign exchange transaction were highly regulated and manipulated to the detriment of international trade and investment. To make matters worse nation sates enaged in “beggar-my-neighbor policies of devaluations in order to stimulate their exports and raise the barriers of impoits, a prescription for disaster and a classical example of the fallacy of composition .
At the end of World War II, the Allies sat down and decided to not repeat the mistakes made after WW I. As part of the United Nations but financially independent, it founded the International Monetary Fund (IMF) and the World Bank.(IBRD) at Bretton Woods, a small location ...
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