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International Finance: (International monetary system 1925-1960) - Essay Example

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International Finance: (International monetary system 1925-1960)

The Industrial Revolution increased the production of goods and widened the basis of world trade (Hodge, 2008, p.287). At that time the necessary condition to promote world trade was a stable exchange rate system. Background World War I World War I (1914-1918) is also known as the Great War. It caused huge loss of property and human life. It destroyed four empires i.e. Austro-Hungarian, German, Romanov and Ottoman. 10 million were killed and around 21 million were wounded (Digitalhistory, p.1). France suffered innumerable property damage. It created circumstances in Balkans, in Russia and in Germany for which people not prepared. It also resulted in uncertainties, instability and economic collapse which were very difficult to deal with. World War II There were many similar reasons of World War I for which World War II was fought. This time the alliance system was Axis powers i.e. Italy, Germany, Japan and the Allied Powers i.e. Russia, Great Britain and France. Hitler’s invasion of Poland in September 1939 drove Great Britain and France to declare war on Germany and this gave rise to World War II (Boisestate, p.1). The Great Depression also led to the coming of World War II. Monetary System before World War I From the 1870’s to the outbreak of World War I in 1914, the world benefited from a well integrated financial orders also known as First Stage of Globalization. The monetary system before World War I was the traditional Gold Standard 1875-1914. During the classical gold standard system, major countries agreed that gold would be guaranteed of unobstructed coinage, there would be cooperative convertibility between national currencies and gold at a constant ratio and gold would be liberally exported and imported.(Gaspar, 2012, p.1). Monetary System before World War II World War I ended the traditional gold standard as most important countries balanced recovery of banknotes in gold and forced embargo on gold exports. The U.S, which replaced Britain as the dominant financial power, spearheads efforts to store the gold standard again. The gold standard of the late 1920s was a facade as major countries gave priority to stabilization of domestic economies by similar inflows and outflows of gold with reduction and increase in domestic money and credit. Moreover, after the World War II Bretton Woods System came into picture (Eun and Resnick, 2010, p.29). Steps taken to regain normalcy after World War I The Paris Peace Conference of 1919 accredited the end of four great empires at the end of World War I. Its mission was to promote the liberal and democratic values. American Peace Societies signed the major agreement amongst great powers to decrease their number of battleships. Most of the nations signed the Kellogg Briand Pact, where they pledged that they will never again go to war with one another. Steps taken to regain normalcy after world war II Following steps has been taken to regain normalcy after World War II: The changes in Government Policies: After the World War II most European Governments, by more government investments stimulated the economic growth of their country. More government investment encouraged private investment, created employment opportunities and led to continuing economic growth of Europe. The French decided to provide the financial resources for constructing more houses and for improving farming facilities. Growth in world trade: Tariffs were reduced between European States for both the organizations. Intra-European traffic ...Show more

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International Finance: (International Monetary System 1925-1960) Table of Contents a. 4 b. 9 Reference 13 a. Introduction: International monetary system facilitates international trade, cross border investment and reallocation of capital between nation states…
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