Bretton Woods System and International Monetary Policy

A comprehensive set of flashcards covering key concepts and facts from the lecture on the Bretton Woods system and international monetary policy, designed to facilitate study and understanding.

What are the three fundamental ways the Bretton Woods system differed from the gold-exchange standard?

Adjustable pegs, controls on international capital flows, and the creation of the international monetary system

What is meant by 'Adjustable pegs' in the Bretton Woods system?

Exchange rates were fixed but countries could adjust them under certain conditions.

What did the Bretton Woods system allow regarding capital flows?

Countries could impose controls on capital movements to preserve domestic economic stability.

What was the purpose of the IMF's creation under the Bretton Woods agreement?

To monitor national economic policies and provide financial assistance to countries with external deficits.

What was John Maynard Keynes' proposal for the Bretton Woods system?

A large fund for liquidity and shared responsibility between deficit and surplus countries.

What was Harry Dexter White's perspective on the Bretton Woods system?

A smaller fund with deficit countries bearing most of the adjustment burden.

Name three interrelated political and economic changes leading to the new monetary system post-WWI.

Fragmentation of the international monetary order, domestic politics vs gold discipline, and competitive devaluations.

By 2016, what percentage of nations had moved to floating exchange rates?

Nearly 40%.

What is a free-floating exchange rate?

An exchange rate that is allowed to vary freely without government intervention.

Define 'managed floating' exchange rates.

Exchange rates that float but are subject to government intervention.

How is an IMF member country's quota determined?

Based on its economic importance and volume of international trade.

What is the formula for determining IMF quotas?

Weighted average of GDP (50%), openness (30%), economic variability (15%), and international reserves (5%).

What are Eurocurrency markets?

Markets dealing with dollars outside of the US, originating from the Marshall Plan.

What are the three main roles of the IMF?

Economic surveillance, capacity development, and lending.

What is the Extended Credit Facility (ECF) provided by the IMF?

Medium-term support to low-income countries with zero interest rates.

What are concessional loans from the IMF?

Loans to low-income countries at low or zero interest rates.

What is the purpose of IMF surveillance?

To appraise and advise on policies of member countries and analyze the world economy.

What are special drawing rights (SDRs)?

International reserve assets created by the IMF, not backed by gold.

What is the Bank for International Settlements?

Established in 1930 to deal with reparation payments imposed on Germany post-WWI.

What is the Basel Committee on Banking Supervision (BCBS)?

A forum for cooperation on banking supervisory matters aimed at enhancing financial stability.

Identify a key characteristic of the gold standard.

Each nation defined its currency value in terms of a fixed quantity of gold.

What mechanism corrects trade imbalances in the gold standard?

Price-specie-flow mechanism.

Describe 'sterilization' in central banking.

Actions taken to offset the impact of international capital flows on domestic money supply.

What is conditionality in the context of IMF loans?

Policy requirements imposed by the IMF on countries receiving financial assistance.

When was the Bretton Woods system established?

July 1944 in Bretton Woods, New Hampshire.

What type of monetary standard did the Bretton Woods system use?

Gold-exchange standard.

Which currency was pegged to gold in the Bretton Woods system?

The US dollar was pegged at $35 per ounce of gold.

What measures did the US implement to address its balance of payment deficit in the 1960s?

Short-term interest rates were kept high to discourage capital outflows.

What did the London Gold Pool aim to achieve?

To keep the market price of gold at $35/oz by selling gold into the market.

What type of loan does the IMF provide to low-income countries with emergency needs?

Rapid Credit Facility (RCF).

What is a currency board arrangement?

A strict fixed exchange rate system pegging domestic currency to a foreign currency.

How does the World Bank classify its projects by sectors?

By economic sectors (e.g., agriculture, health, education).

Which World Bank institution primarily serves the poorest nations?

The International Development Association (IDA).

What is the main funding mechanism for the IDA?

Contributions from high-income member countries every three years.

What is the key difference between IBRD and IDA?

IBRD lends to middle-income countries; IDA serves the poorest countries with concessional terms.

What is the significance of the Performance and Learning Review (PLR)?

To assess the effectiveness of the CPF and update it as necessary.

What do SCDs do in the country engagement cycle?

They provide a systematic assessment of a country's constraints and opportunities.

What is the purpose of a Completion and Learning Review (CLR)?

To inform the next CPF by assessing the performance of the completed CPF.

What differentiates a Systematic Country Diagnostic (SCD) from a Country Partnership Framework (CPF)?

SCD identifies problems; CPF plans objectives and implementation.

In what situations are Country Engagement Notes (CEN) used?

When a full CPF cannot be developed during crises or transitions.

What are the 'selectivity filters' used for determining CPF objectives?

Country development goals, twin goals of poverty reduction, and WBG comparative advantage.

What is the World Bank's mission?

To end extreme poverty and boost shared prosperity on a livable planet (used to be by the year 2030 and in a sustainable way)

What are the three main businesses of the IFC?

Investment services, advisory services, and asset management.

What historical event was the first activity of the IBRD?

A loan to France in 1947 for post-WW2 rebuilding.

What is the impact of the Triffin dilemma on the US dollar?

Persistent deficits and loss of confidence in the dollar.

What significant action did the US take during the Nixon Shock?

Ending the convertibility of dollars into gold.

Why do countries face balance of payment deficits in a fixed exchange system?

Due to inflows exceeding outflows, leading to destabilization.