Essay: Rules and Institutions of the Bretton Woods System

Pages: 6 (2561 words)  ·  Bibliography Sources: 23  ·  Level: Master's  ·  Topic: Economics  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] History shows that, unions that are centralized are permanent and durable with abilities to adjust to the disturbances and survival shocks as compared to decentralized unions that have a high tendency to disintegrate under political and economic turmoil (Cesarano, 2007).

Monetary unions often face the risk of disintegrated unification among the member states. Political unification often results in monetary unification that sustains the survival of the union (Gnos and Rochon, 2006). However, hegemonic loses in power in member state places the union at risk of disintegration. This calls for the need for the establishment of clearly defined policies and anticipatory measures to respond to such challenges. Shared values related to the benefits of ensuring cooperation among the sovereign member states maintains the stability and functioning of the monetary unions (Boughton, 2008). This entails taking into consideration the varied historical, religious, cultural, and geographical factors implicated to influence the relationship and sustainability of the union. The EMU learnt from the success and failures of the Bretton Woods System that, creation and separation of a monetary union take a long period characterized with challenges that might inhibit success. Thus, it is imperative for the development of anticipatory measures to respond to the challenges that might affect the process (Bordo, Eichengreen, and National, 1993).

Political unity act as a glue holding a monetary union together, a disappearance of the unity has a basic rule of ending the unity and strength of the union. As such, ensuring political stability among the member states is a prerequisite of the EMU to see its success. As stated by Bernstein and Kirshner, (1996) the EMU learnt from the experiences of the Bretton Woods Systems that, fiscal federalism is not a key determinant of sustainability and longevity of a monetary union. Monetary unification do not necessary need fiscal unification, but it mainly relies on the central control of the money supply among the member states. As such, if the established system developed to determine taxes facilitates and maintains political unity, this will result in the enhancement of the monetary union (Avgouleas, 2010).

Irrespective of the alternative of exchange adopted by a monetary union, the economy of the member states is subject to negative business cycle, macroeconomic disturbances, and crises influencing the stability of the monetary union. This proves for the European Monetary Union that no monetary intervention that will guarantee a future free of a shock to its sustainability. Evidence from the analysis of the historical experience of the Bretton Woods Systems, it is predicted that, the European Monetary Union will behave as a centralized monetary institution to ensure its performance and sustainability (Ardy, 2000). The fact of its having a monopoly power in the provision of the euro will attest to its prediction to function in the future as a centralized monetary union. According to currency area theories, the euro era of the EMU is expected to move closer to acquiring an "optimal monetary union" with time. This is caused by the behavior of the involved institutions in embracing the stated policies that ensure its success.

Conclusion

The establishment of various fiscal bodies and policies like the Bretton Woods System are essential in ensuring that currencies are stabilized. This study has shown that the system's formulation was informed by the constant economic challenges that face the global economy. The Bretton Woods System is seen to have succeeded unlike the EMU. The system succeeded because its key fundamental design feature which adopted the principle of the flexible linking the foreign currency to gold. Besides, the success of the system rests largely on the unity and cooperation among partner nations. Conclusively, the success of a monetary union depends on numerous factors that must be taken into consideration besides adopting experiences from other unions.

References

Ardy, B., 2000. Economic and monetary union: A review article. JCMS: Journal of Common

Market Studies, 38 (7), p.667.

Avgouleas, E. 2010. The governance of global financial markets and international financial regulation: Legal framework and policy directions. Cambridge: Cambridge Univ. Press.

Bernstein, E.M., and Kirshner, O. 1996. The Bretton Woods GATT system: Retrospect and prospect after fifty years. Armonk, NY [u.a.: Sharpe.

Bordo, M.D., Eichengreen, B.J., and National Bureau of Economic Research. 1993. A

Retrospective on the Bretton Woods system: Lessons for international monetary reform.

Chicago: University of Chicago Press.

Boughton, J.M., 2008. Monetary Theory and Bretton Woods: The Construction of an International Monetary Order. History of Political Economy, 40(3), pp.561 -- 563.

Cesarano, F. 2007. Monetary theory and Bretton Woods: The construction of an international monetary order. New York: Cambridge University Press.

Eichengreen, B., 2004. Global Imbalances and the Lessons of Bretton Woods. NBER Working

paper, 89 (7) pp.31 -- 41.

Ehrig, D. 2010. The Euro, the Eurosystem and the european economic and monetary union:

Prospects and risks of a Unified Currency = Der Euro, das Eurosystem und die

Europa-ische Wirtschafts- und Wa-hrungsunion: Chancen und Risiken einer einheitlichen

Wa-hrung. Mu-nster: Lit.

Gnos, C., and Rochon, L.-P. 2006. Post-Keynesian principles of economic policy. Cheltenham [u.a.: Elgar.

Ha-gele, K.C. 2010. The Bretton Woods System of Fixed Exchange Rates - Theoretical

Background and its Development. Mu-nchen: GRIN Verlag.

Herrmann, H., 2001. The German financial system and European monetary union. Journal of Asian Economics, 12(6), pp.37 -- 46.

International Monetary Fund. 2013. Finance and development: March 2013. Washington, D.C:

International Monetary Fund.

James, H. 2012. Making the European monetary union: The role of the Committee of Central

Bank Governors and the origins of the European Central Bank. Cambridge, Mass:

Kenen, P.B. 1994. Managing the world economy: Fifty years after Bretton Woods.

Washington, DC: Inst. For Internat. Economics.

Lucarelli, B., 2011. A new international Bretton Woods System?

Real-world economics review, 121, pp.8(3) -- 88.

Pisani-Ferry, J., 2013. The known unknowns and unknown unknowns of European Monetary Union. Journal of International Money and Finance, 3(4), pp.6 -- 14.

Steil, B. 2013. The battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the making of a new world order. Princeton: Princeton University Press.

Torres, F. 1996. Adjustment and growth in the European Monetary Union. Cambridge [u.a.:

Cambridge Univ. Press.

Va-squez, I. 2000. Global fortune: The stumble and rise of world capitalism. Washington, D.C:

Cato Inst.

Verdun, A., 2002. "Conceptualising the New Europe: European Monetary Integration and Beyond." Lanham, Md. [u.a.: Rowman and Littlefield.

Vives, X., 2001. Restructuring Financial… [END OF PREVIEW]

Four Different Ordering Options:

?
Which Option Should I Choose?

1.  Buy the full, 6-page paper:  $26.88

or

2.  Buy & remove for 30 days:  $38.47

or

3.  Access all 175,000+ papers:  $41.97/mo

(Already a member?  Click to download the paper!)

or

4.  Let us write a NEW paper for you!

Ask Us to Write a New Paper
Most popular!

Gold Bretton Woods Gold Dollar Standard System Term Paper


Anti-Capitalist & Anti-War Groups on Anti-Capitalism Globalise Thesis


Financial Institutions & Global Poverty Essay


Benefits and Challenges of the International Monetary System Research Paper


Asian Financial Crisis and How it Affect the International Monetary System Term Paper


View 31 other related papers  >>

Cite This Essay:

APA Format

Rules and Institutions of the Bretton Woods System.  (2014, March 17).  Retrieved April 21, 2019, from https://www.essaytown.com/subjects/paper/rules-institutions-bretton-woods-system/7804609

MLA Format

"Rules and Institutions of the Bretton Woods System."  17 March 2014.  Web.  21 April 2019. <https://www.essaytown.com/subjects/paper/rules-institutions-bretton-woods-system/7804609>.

Chicago Format

"Rules and Institutions of the Bretton Woods System."  Essaytown.com.  March 17, 2014.  Accessed April 21, 2019.
https://www.essaytown.com/subjects/paper/rules-institutions-bretton-woods-system/7804609.