Day 52 – Q 1.What are Bretten-Woods institutions? Why do these insertion need to be reformed? Analyse.

1. What are Bretten-Woods institutions? Why do these insertion need to be reformed? Analyse.  

ब्रेटन-वुड्स संस्थान क्या हैं? इन प्रविष्टियों को सुधारने की आवश्यकता क्यों है? विश्लेषण करें।

Introduction:

In 1944, policy makers gathered at Bretton woods in the USA to consider how to resolve two serious issues. First, how to avoid 1930’s Great Depression form occurring again and second ways to ensure stale global monetary system and open world to trade. This gave rise to two institutions named International Monetary fund and The International bank for Reconstruction and Development.  

Body:

The reason for establishment of Bretton woods institutions were:

• To ensure a stable exchange rate system.
• A reserve asset or unit of account i.e. Gold standard.
• Control international capital flow.
• Availability of short term and long term loans to countries facing temporary balance of payment crisis.
• Rules to keep economies open to trade.

Why these institutions need reforms:

• Floating exchange rate: The institutions were created to ensure stable exchange rate but since 1971, Bretton woods system was replaced by floating exchange rate.
• Regional groupings: Major powers have started discussing monetary issues among themselves like G-20, G7 etc.
• US Subprime crisis: The institutions could not prevent global recession in 2008 and failed to even predict it.
• Protectionism: Rise in protectionism in form of non-trade barriers have made these institutions redundant.
• New economic order: The institutions have not transformed according to needs of new economic orders.
• Domination of West: The institutions have been dominated by Western countries and new powers like India and China have very less power.
• Crisis: New crisis in Venezuela, African countries and European countries like Greece etc. have proved that the institution has lived far beyond its expiry date.
• New institutions: New institutions like AIIB, New Development Bank have been established by emerging economies like India and China to counter west dominated institutions.

Conclusion:

Since US sub-prime crisis, the power shift became more obvious in the global economy with emerging countries like China and India playing more prominent role in negotiations of trade, finance and development. This power shift has not been recognized and reflected in Bretton woods institutions.

Best Answer: No best answer.