Short Essay Example | Topics and Well Written Essays - 2000 words - 1

Short - Essay Example Their original rationale does not fit any more and their activities too have been altered as the world economy has grown (Krueger, 1998). Nevertheless, Bretton Woods institution did play a leading role in the restructuring of international relations in the post -war period. Exchange rates in the pre-war period were used to secure competitive advantage in the mercantilist world (Crockett, 1999). Current account payments were subject to severe restrictions. The International Capital Mobility evolved because the Great Depression discredited gold standard orthodoxy and the financial markets became unpopular. The attachment to gold was identified as the causes of economic calamity. Financial products and markets became closely regulated. Maintaining high employment was considered more important than preserving the value of currency (Obstfeld, 1998). The current account payments were to be progressively liberalized. These changed attitudes led to the establishment of the Bretton Woods Institutions. The basic idea with which this institution was promoted was to promote cooperation and humanitarian goals. The two architects had different goals and objectives right from the beginning. While White intended to favor incentives designed to create price stability within the worlds economies, Keynes wanted a system that encouraged economic growth (O’Hara). Hence, even before the plan was launched, there were compromises made from both sides although the final plan was largely American in nature. It was obligatory for each of the member country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value in terms of gold. IMF would bridge temporary imbalances of payments. The planners at Bretton Woods favored a liberal system relying primarily on the market with the minimum barriers to the flow of private trade and capital. It was believed that the fundamental cause of the two world wars lay in economic