International

organizations

Course: Ekon3065
Lecturer: Mārcis Dzelme
Driving Forces of Globalisation

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Timeline
1945 World Bank
1945 International Monetary Fund
1945 United Nations
1948 General Agreement on Tariffs and Trade (1995 WTO)
1958 European Investment Bank
1961 Organization of Economic Cooperation and Development
1975 Nordic Investment Bank
1991 European Bank for Reconstruction and Development

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Protectionist Policies: 1914-1945
• Policies that seek to increase domestic demand for the local products.
Imports are reduced to the minimum and domestic supply is increased
by reducing export of capital abroad
• Post-WWI economic depression led countries to institute protectionist
trade policies

Since 1945, both Republican and Democratic presidents have sought to

lower trade barriers and negotiate reciprocity agreements. Those efforts
have been reflected in the GATT, the WTO and the NAFTA.

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Bretton Woods,
New Hampshire

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The Bretton Woods agreement
• Agreement of 1944 of all of the WW II Allied nations established a new global
monetary system.
• Agreement replaced the gold standard with the U.S. dollar as the global
currency. It established U.S. as the dominant power in the world economy.
• Under the agreement, countries promised that their central banks would
maintain fixed exchange rates between their currencies and the dollar. If a
country's currency value became too weak relative to the dollar, the bank
would buy up its currency in foreign exchange markets.
• The agreement created the World Bank and the International Monetary Fund
(IMF), U.S.-backed organizations that would monitor the new system.
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The Bretton Woods agreement - 2
• Before Bretton Woods, most countries followed the gold standard. That meant each
country guaranteed that it would redeem its currency for its value in gold. After
Bretton Woods, each member agreed to redeem its currency for U.S. dollars.
• The U.S. held three-fourths of the world's supply of gold. No other currency had
enough gold to back it as a replacement. Bretton Woods allowed the world to slowly
transition from a gold standard to a U.S. dollar standard.
• The dollar had become a substitute for gold. As a result, the value of the dollar began
to increase relative to other currencies.
• The transition created more demand for dollars, even though its worth in gold
remained the same. This discrepancy in value planted the seed for the collapse of
the Bretton Woods system three decades later.

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The Bretton Woods agreement - 3
Why the Agreement Was Needed?
• Until World War I, most countries were on the gold standard. However, they cut the tie to gold so they
could print the currency needed to pay for their war costs. This inflow of currency caused hyperinflation,
as the supply of money overwhelmed the demand. After the war, countries returned to the safety of the
gold standard.
• Hyperinflation caused the value of money to fall so dramatically that, in some cases, people needed
wheelbarrows full of cash just to buy a loaf of bread.
• All went well until the Great Depression. After the 1929 stock market crash, investors switched
to commodities trading. It drove up the price of gold, resulting in people redeeming their dollars for gold.
The Federal Reserve made things worse by defending the nation's gold reserve by raising interest rates.
• The Bretton Woods system gave nations more flexibility than strict adherence to the gold standard. It also
provided less volatility than a currency system with no standard at all. A member country still retained the
ability to alter its currency's value, if needed, to correct a "fundamental disequilibrium" in its current
account balance.

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The Bretton Woods agreement - 4
Role of the IMF and World Bank 
• Member countries needed IMF to bail them out if their currency values got too low. They'd need a kind of
global central bank they could borrow from if they needed to adjust their currency's value and didn't have
the funds themselves. Otherwise, they would just slap on trade barriers or raise interest rates.
• The Bretton Woods countries decided against giving the IMF the power of a global central bank. Instead,
they agreed to contribute to a fixed pool of national currencies and gold to be held by the IMF. Each
member country of the Bretton Woods system was then entitled to borrow what it needed, within the
limits of its contributions. The IMF was also responsible for enforcing the Bretton Woods agreement. The
IMF was not designed to print money and influence economies with monetary policies.
• The World Bank, despite its name isn't the world’s central bank. At the time of the Bretton Woods
agreement, the World Bank was set up to lend to the European countries devastated by World War II. The
purpose of the World Bank changed to loaning money to economic development projects in emerging
market countries.

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The Bretton Woods agreement - 5
The Collapse of the Bretton Woods System 
• In 1971, the United States suffered from massive stagflation—a combination
of inflation and recession, which causes unemployment and low economic growth.
• In response to a dangerous dip in value caused by too much currency in
circulation, President Nixon started to deflate the dollar's value in gold.
• The devaluation plan backfired. It created a run on the U.S. gold reserves at Fort
Knox as people redeemed their quickly devaluing dollars for gold. In 1971, Nixon
unhooked the value of the dollar from gold altogether. Without price controls, gold
quickly shot up to $120 per ounce in the free market, ending the Bretton Woods
system.

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A New Bretton Woods moment?
Follow the link and read or watch
the speech by IMF Managing
Director

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League of Nations and UN
• LON was the first worldwide IGO to maintain world peace. It was founded in
1920, following the Paris Peace Conference that ended the WW I
• The UN was established after WW II with the aim of preventing future wars,
succeeding the ineffective LON. In 1945, 50 governments met in San Francisco
for a conference and started drafting the UN Charter, which was adopted and
took effect at the end of the same year - 1945, when the UN began operations.
• Pursuant to the Charter, the UN’s objectives include maintaining international
peace and security, protecting human rights, delivering humanitarian aid,
promoting sustainable development, and upholding international law. At its
founding, the UN had 51 member states.

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The GATT, GATS and WTO
• The GATT was first discussed during the UN Conference on Trade and Employment
and was the outcome of the failure of negotiating governments from 1945 to 1948
to create the International Trade Organization.
• GATT was signed by 23 nations in Geneva and took effect on 1 January 1948. It
remained in effect until the signature by 123 nations in Marrakesh on 15 April 1994,
of the Uruguay Round Agreements which established the WTO on 1 January 1995.
• The WTO is the successor to the GATT, and the original GATT text (GATT 1947) is still
in effect under the WTO framework, subject to the modifications of GATT 1994.
• Nations that were not party in 1995 to the GATT need to meet the minimum
conditions spelled out in specific documents before they can accede.

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The OEEC and OECD
• The OECD was initially called the Organisation for European Economic
Cooperation, or OEEC. It was started in 1948, after WW II, to run the Marshall
Plan to reconstruct Europe. Its goal was to help European governments
recognize their economic interdependence. In this way, it was one of the
roots of the European Union.
• Once the Marshall Plan was complete, Canada and the U.S. joined the OEEC
nations. That created the OECD on December 14, 1960.

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G 2.0: International Trade 1950-1980
• Re-building world after WWII
• Trade liberalization
• By 1980, trade between developed countries in manufactured goods
was free of barriers
• Barriers facing developing countries were removed only for those
primary commodities that did not compete with agriculture in
developed countries
• Transport costs continued to fall

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EBRD
Commitment to the market and entrepreneurship
• The EBRD is committed to furthering progress towards ‘market-oriented economies and the promotion of private and
entrepreneurial initiative’. This has been its guiding principle since its creation at the beginning of the 1990s and, new
challenges and the welcoming of new countries to the EBRD world notwithstanding, will continue to be its mission in
years to come.
A turning point in the history of Europe
• The EBRD was set up in haste to meet the challenge of an extraordinary moment in Europe’s history, the collapse of
communism in its East. In fact, a mere 18 months elapsed between the first mooting of the idea of a European
development bank, by President François Mitterrand of France, in October 1989 and its opening for business with
headquarters in London in April 1991.
• Urgency and the ability to respond to momentous events swiftly and decisively, whether it be the end of the Soviet
Union, financial crises, the ‘Arab Uprising' or the coronavirus pandemic have been among the EBRD’s hallmarks from the
start.
• During the frenetic years of the early 1990s the EBRD’s emphasis on the private sector as the main driver for change in
Central and Eastern Europe was vindicated many times over. This was the period that established the EBRD’s reputation
as an expert on transition to the open market.

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Protectionist Policies: 20?? – 20?? ?

• What effect Financial Crises of 2008 had on globalization?

• Have we reached peak globalization?
• What are Trump’s policies? Brexit?
• Slowbalization?

What is a way ahead? A new Bretton Woods moment? Time for a

cryptocurrency?

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Seminar & Homework Task
1. Choose one out of eight selected IGOs:
1945 World Bank
1945 International Monetary Fund
1945 United Nations
1948 General Agreement on Tariffs and Trade (1995 WTO)
1958 European Investment Bank
1961 Organization of Economic Cooperation and Development
1975 Nordic Investment Bank
1991 European Bank for Reconstruction and Development
2. Study the organization in a group of 3-5
3. Submit the work in e-studies and present on 29.10.

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Paldies!