International Economic History since 1870 Essay

International Economic History since 1870 - Essay Example The plan of new economic financial system produced by the United Kingdom and the USA was aimed to remedy some imbalances of pre war economic financial system of gold standard. Such huge economic problems as the volatility of the floating exchange rates, dependence of the countries on the adjustment mechanisms, had been frequently resolved either by recession and deflation or by inflation and rapid expansion. New conference led to the establishment of the new fund International Monetary Fund that was destined to remedy some imbalances in the world economy.2 New mechanism devised by the countries provided for the system with fixed yet adjustable exchange rates; those countries that experienced payment deficits could borrow necessary funds from created monetary fund, whereas the nations with the payment surpluses could lend funds; the agreement also envisaged the change of the exchange rates if the financial steps taken by the Governments were not able to resolve the problem of the payment deficits. In sharp contrast with the pre war period, dollar rather than gold was set as the world reserve currency, other nations provided dollar values for their currencies; the value of the currency of other country in dollar or par value was maintained by the national banks of nations. For instance the United Kingdom set $ 2.80 per British pound; all banks of the nations participants of the Fund agreed to maintain the values of their currencies within 1 percent of the par value of the currency. 3 However, the initial success of the newly created financial system depended on the post war economic recovery especially in the European countries; the USA was almost the only developed country that had strong and stable economy at the end of 1945. The economies of most of the European countries had been devastated by the conflict and required large amount of technical and financial assistance to restore pre war levels of economic development. 4 Despite the fact that over 5 billion dollars had been granted to European nations by 1947, most of these funds were spent on some short-term emergencies and no long term plan of economic recovery had been developed. Apart from economic reasons to restore economies of Europe, the plan was also aimed to check the spread of Communism in some of the countries of Western and Southern Europe; as there was a real threat that leftist parties might win the election throughout whole Western Europe, or that some politicians might be tempted to rebuild s hattered economy of Europe by communist methods. Naturally these prospects were not greeted with enthusiasm in the United States, neither the USA could allow European continent to succumb to this Communist threat. Despite the fact that plan was developed with the purpose to check the communism, yet all nations including the countries of the Communist block were invited to participate in the program; latter countries of the Eastern Europe were forced to refuse to participate in