THEGOLDSTANDARD WORLD BANK International Monetary Fund By: Tanille, Jacob, Megan
The Gold Standard How it works
The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. • Every coin had a piece of gold to back it up, virtually no inflation • Money was freely converted into gold at a fixed price.
Economics of the gold standard • Money supply was controlled by the amount of gold the country had, exchange rates rarely changed. • Periodic surges in the world’s gold stock, such as the gold discoveries in Australia and California around 1850, caused price levels to be very unstable in the short run.
For the gold standard to work, when central banks existed they were supposed to play by the rules. They were supposed to raise their discount rates, the interest rate at which the central bank lends money to member banks, to speed a gold inflow, and to lower their discount rates to allow a gold outflow. • Britain followed the rules, France and Belgium did not this caused the system to slowly fall apart due to politics.
Modern politics with the gold standard • The republican party of America has brought up the idea of bringing back the gold standard to USA to stop runaway inflation. With a world generally ruled by floating exchange rate it is assumed that a single country with a fixed exchange rate would crash and burn. • Gold standard can be a very volatile market for countries if there demand for goods fall. http://www.empowernetwork.com/successfullife/blog/the-gold-standard-january-2013/
Economists Disagree with the gold standard. Even though the majority of economists disagree with a return to the gold standard some have very quality points about how it would help. Inflation would be slowed and there would be no more giant economic downturns and a much more stable economy. The banks could no longer over inflate prices but the growth would be very slow and volatile if a surplus of gold is found. http://www.google.ca/url?sa=i&rct=j&q=no+to+gold&source=images&cd=&cad=rja&docid=y5UNdiBJVAazrM&tbnid=7KczNrv_nZ_48M:&
Perspectives on the systems • Many economists believe the gold standard returning to the United States would cause the country major economic downturn, all the systems in place will need a revamp and every other country would have a much more difficult time trading with USA.
The World Bank • The world bank provides financial assistance to countries in need • It is an agency of the United Nations • It started in 1944 • The main purpose when it started was to lend money to countries so they would be able to reconstruct after the war • The purpose has shifted to lending money to less developed countries in order to help them with their financial difficulties
In order to get loans countries are required to meet certain political and economic conditions • The world bank is made up of two institutions • The International Bank for Reconstruction and Development which helps low and middle income countries • And the International Development Association which focuses on the poorest countries in the world
It is criticized for operating with the assumption that the free market system can bring prosperity to all countries • Free market reforms are not always suitable for countries that experience conflicts, are under a dictator ship or do not have a stable, democratic political systems • The bank is also under the influence of more developed countries, which might increase the favor towards countries with foreign investments but they would end up supporting corrupt governments
Politics, Economics, and Globalization affected by the World Bank • The world bank affect politics because in order for those third world countries to get loans they are usually required to increase the democracy in the country, which would help decrease the corruption. • Economics are affected by the world bank because the country that is borrowing the money may need to adopt a Western-style free market. This would affect the economics because it could increase the economic stability of the country • The World Bank affects globalization because it allows the poorer countries to have a chance to be a part of world trading and it gives them the chance to become more immersed with other countries through out the world
International Monetary Fund (IMF) is an international organization that was established in 1945. It is the other large agency responsible for regulating the Economies of the world’s countries Besides the World Bank.
Their goal is to promote international trade and monetary cooperation and the stabilization of exchange rates. They monitor exchange rates and providing short-term financial assistance.
It tries to achieve these goals in three ways: Technical Assistance and Training Financial Assistance Surveillance
Surveillance 1 The IMF assesses each country’s economic situation annually and discusses it with the country’s authorities. The IMF’s findings are published twice a year in World Economic Outlook and Global Financial Stability Report.
Technical Assistance and Training 2 The IMF provides this service, generally offered free of charge, in the areas of banking and financial system supervision and regulation.
FinancialAssistance 3 Like the World Bank, the IMF offers funds and loans to member countries to address debt problems and to help reduce poverty.
Dictatorships are given loans to support their governments Critics maintain that the IMF, is controlled by the United States and other more developed countries whose main focus is to protect their corporations and interests rather than those of less developed countries. Some critics of the IMF claim that it deliberately supports capitalist military dictatorships friendly to American and European corporations.
Supporters of the IMF say that it is simply a funding agency with little power to change anything, let alone sovereign countries They point out that the IMF’s stated objective is to advise and promote financial stability, not to make social changes in the world.
Overall, the IMF’s success record is limited. It was created to help stabilize the global economy but, since 1980, more than 100 countries have experienced a banking collapse—far more than at any previous time in history.
Sources • History . (2012, 01 31). Retrieved from http://go.worldbank.org/65Y36GNQB0 retrieved on 2013, 04 03. • Bordo, M. (n.d.). Gold standard. Retrieved from http://www.econlib.org/library/Enc/GoldStandard.html • Washinton, R. A. (2012, sept. 11). On gold and golden ages. Retrieved from http://www.economist.com/blogs/freeexchange/2012/09/monetary • Coy, P. (2013, January 6). Besides gold economist disagree. Retrieved from http://www.businessweek.com/articles/2013-01-06/besides-gold-dont-ask-economists-what-works • Perspectives on Globalization- Textbook