Question

International Political Economics

1. Explain reasons of changing of the international financial system after the 1930s.

Answer 1

Answer :- The starting of great depression in United States during 1930 . Abandonment of gold standard by UK in 1931 started damaging the international financial system resulted in collapse of commodity price and international trade. Value of gold fell to 47.5 percent between 1929 to 1932 . And in the same period gold value of international trade fallen to 63%.

Countries tried to defend itself from deflationary pressures and their actions made things worse for other countries. The era of beggar -thy-neighbor policies began in which exchange rate were devalued to protect export opportunities at the expense of other countries. Exchange restriction were made by many nations as there were multiple exchange rates. Major industrial countries rose their tariffs. The spill over effects of national policy actions led to downfall of economy more around the world. International capital flows went down drastically. Participants of bretton woods wanted to avoid this destructive era further more. They established well functioning and stable international financial system to replace the competitive devaluation of 1930s with fixed exchange rate and rules and regulation to avoid unilateral adjustment. To increase international trade and promote economic growth between countries and to ecourage full employment. For ensuring the international financial stability new institution were established such as international monetary Fund(IMF), International bank for reconstruction and development later known as World Bank.