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MOIZ KALABHAI STUDENT NUMBER-120491980 MBA CLASS 2013

ESSAY THE ROLE OF INTERNATIONAL MONETARY FUND

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CONTENTS I–

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INTRODUCTION……………………………………………………………………………………….2

II – Brief History of Bretton Woods System……………………………………………………2 III – Formation of International Monetary Fund (IMF)…………………………………….3 IV – Role of IMF………………………………………………………………………………………………3 V – Post Period of 1972-81 (The Floating Exchange Rate Era)………………………….4 VI – Current Financial Crisis…………………………………………………………………………….6 VII – IMF Response to Current Financial Crisis…………………………………………………..11 VIII – Conclusion: Role of IMF in Future…………………………………………………………….13 IX – References……………………………………………………………………………………………….15

I – INTRODUCTION

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This essay will critically describe and discuss the role of International Monetary Fund in the current financial crisis and also the role it will play in shaping the Global Political Economy in the future. II – Brief History of Bretton Woods System Over the past century, the global economies had suffered numerous shocks ranging from series of war such as World War I and World World II and Great Depression of 1930. The stability of all the world economy got heavily affected during that period and the new global financial system became a necessity. In order to create a harmonious world community in which the population of every nation will be able to realize their strengths and weaknesses and to create a long lasting peace the idea of stabilization of world currency was introduced in Bretton Woods International Monetary Conference in 1944 (Das, 2003). The then US president Franklin Roosevelt has invited the delegates of 44 allies and members associate countries at Bretton Woods New Hampshire on the opening of United Nations International Monetary conference (1944 Bretton Woods International Monetary Conference). The delegates to Bretton Woods System was headed by Henry Morgenthau and also Harry Dexter White who was Roosevelt chief economist to create a post war global economic framework, they devised the system of making the Dollar currency as a reserve currency linked to gold and on which all the currency would be fixed which would allow USA to play a vital role in the development of world economy such as development of power system, the nuclear system, the railways, the mass greening of the African desert and many more. For such a vision a strong currency should be the central currency, else none of the countries around the world would be willing to accept credit except in the form of gold and there was not enough gold in the whole world in order to materialize the vision of global economic development in post war period (Ikenberry, 1992). But the Bretton wood system suffered a conflict mainly with the British Delegates which was being headed by John Maynard Keynes a staunch advocate of the British Imperial system of economist. Keynes was an accountant who use to record and tabulate almost everything in his life which also include his sexual encounters, and this was the personality the Americans has to deal with at the Bretton woods. Keynes proposed to the Bretton wood contrary to Americans to set up a global financial authority that will issue a global currency called ‘BANCOR’ by which all international trade would be measured the primary feature of this proposal was that the nation has to achieve the balance of trade in which the export should be equal to import of the nation and any imbalances on the part of

import or export would be charged an interest fee on the overdrawn account. Nonetheless, both Keynes and White guided the discussion at Bretton woods which eventually created the International Monetary Fund and the World Bank (The True Story Of The Bretton Woods, 2009).

III – Formation of International Monetary Fund (IMF)

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The IMF was formed in December 1945 and began its operation on March 1 1947, when first 29 member’s countries signed the Articles of Agreement. The IMF has 5 largest...
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