central bank
economists and experts are placed here to keep the value of the dollar high
Central Banks are constrained
by the share of the money they
control.
...
Bretton Woods Conference
730 delegates from all 44 Allied nations Mount Washington
Hotel in Bretton Woods, New Hampshire
� USA, France, UK, Australia, India, Mexico, China, Belgium
� Goal: Regulate the international monetary and financial order
after WWII
� Support regimes based
bretton woods system
The International Bank for
Reconstruction and Development
(aka World Bank): Source of loans to
reconstruct W. Europe
International Monetary Fund (IMF): Coordinates international
currency exchange, the balance of international payments, and
national accoun
Special Drawing Right (SDR or Paper Gold):
Created by IMF (1969), closest thing to world currency
Not really a currency, but a potential claim on the usable
currencies of IMF members
� Created in limited amounts by IMF, held as hard-currency
reserve by states' central banks
� Can be exchanged for various international currencies
� US$ is dollar was fi
how does imf work
The goal: Coordinated international
currency exchange, balanced
international payments, and
balanced national accounts
A unilateral move to reduce the value of one's own currency by changing a xed or ofcial exchange rate is called a
devaluation
...
The World Bank works to
stabilize and develop
economies in poor and
middle-income countries
...
devaluation
Generally, devaluation is a quick x for nancial problems in the short term, but it can create new problems. It causes losses to foreigners who hold one's currency (which suddenly loses value). Such losses reduce the trust people place in the currency. As
Such government interven-tion to manage the otherwise free-oating currency rates is called a
managed oat
sys-tem. The leading industrialized states often, but not always, work together in such interventions. If the price
...
Closely linked with the World Bank is the
International Monetary Fund (IMF)
The IMF coordinates interna-tional currency exchange, the balance of international payments, and national accounts (discussed shortly). The World Bank and the IMF continue to be the pillars of the inter-national nancial system.
To replace gold as a world standard, the IMF created a new world currency, the
Spe-cial Drawing Right (SDR)
.
...
The SDR has been called "paper gold" because it is created in limited amounts by the IMF, is held as a hard-currency reserve by states' central banks, and can be exchanged for various international currencies. The SDR is today the closest thing to a world
...
The technical mechanisms of the IMF are based on each member state's depositing nancial reserves with the IMF. Upon joining the IMF, a state is assigned a
quota
for such deposits, partly of hard currency and partly of the state's own currency (this quota
...
A state's
balance of payments
is
like the nancial state-ment of a company: it summarizes all the ows of money in and out of the country. The system itself is technical and not political in nature. Essentially, three types of interna-tional transactions go into the balance of payments: th
he
current accoun
basically the balance of trade discussed in Chapter 8 . Money ows out of a state to pay for imports and ows into the state to pay for exports.
The second category in the accounts,
capital ows,
are foreign investments in, and by, a country.
9
Capital ows are measured in
net
terms�the total investments and loans for-eigners make
in
a country minus the investments and loans that country's companies
...
The third category,
changes in foreign exchange reserves
makes the national accounts balance. Any difference between the inows and outows of money (in the current account and capital ows combined) is made up by an equal but opposite change in reserves
Government decisions about spending and taxation are called
scal policy
; decisions about printing and circulating money are called
monetary policy
...
Unlike portfolio investment (on paper),
foreign direct investment
involves tangible goods such as factories and ofce buildings (including ownership of a sizable fraction of a company's total stock, as opposed to a portfolio with little bits of many compan
...
A state in which a foreign MNC operates is called the
host country
; the state where the MNC has its headquarters is called its
home country
...
This chapter discusses the sources of this "coming together." First, we will discuss state decisions to cooperate in order to create international organizations that are
supranational
they subsume a number of states and their functions within a larger whole. The UN, as we have seen, has some supranational aspects, though they are limited by the UN Charter, which is based on state sovereignty.
The theory of international integration attempts to explain why states choose suprana-tionalism, which challenges once again the foundations of realism (state sovereignty and territorial integrity).
International integration
refers to
the process by which supranational institutions replace national ones�the gradual shifting upward of sover-eignty from state to regional or global structures. The ultimate expression of integra-tion would be the merger of several (or many) states into a s
neofunctionalism
is a modication of func-tional theory by IR scholars to explain these developments. Neofunctionalists argue that economic integration (functionalism) generates a
political
dynamic that drives integration further. Closer economic ties require more politica
functionalism
growth of specialized of technical organizations that cross state borders
European Union
created after World War II and has devel-oped since. But whereas the UN structure has changed little since its Charter was adopted, the EU has gone through several waves of expansion in its scope, membership, and mission over the past 50 years.
6
The EU t
But already, two French leaders, Jean Monnet and Robert Schuman, were developing a plan to implement the idea of functionalism in Europe�that future wars could be prevented by creating economic linkages that would eventually bind states together political
...
treaty of rome
1957, the same six states (France, Germany, Italy, Belgium, the Netherlands, Luxembourg) created two new organizations. One extended the coal-and-steel idea into a new realm, atomic energy.
Euratom
, the European Atomic Energy Community, was formed to coo
In a
customs union
, participating states adopt a unied set of tariffs with regard to goods coming in from outside the free trade area. Without unied tariffs, each type of good could be imported into the state with the lowest tariff and then reexported (t
...
Eurocrats
�who care more about technical problem solv-ing than about politics
...
The Eurocrats consist of a staff of 25,000, organized under the
European Commission
at EU headquarters in Brussels, Belgium
...
Council of the European Union
(formerly named the Council of Ministers)
the Council is a meeting of the relevant ministers (foreign, economic, agriculture, nance, etc.) of each member state�politicians who control the bureaucrats (or who try to).
european parliament
which falls somewhat short of a true legislature passing laws for all of Europe.
8
At present, it operates partly as a watchdog over the Commission, but with some power to legislate. It must approve the Commission's budget but cannot control it item by it
european commission
The Commission has 27 individual members�one from each member state�who are chosen for four-year renewable terms. Their role is to identify problems and propose solutions to the Council of the European Union. They select one of their members as the commis
After adoption of the Lisbon Treaty
nearly all issues are now decided by qualied majority voting
The 2009 Lisbon Treaty signicantly expanded the areas in which the co-decision procedure applies. It also serves as a debating forum and a symbol of European unity.
...
european court of justice
in Luxembourg adjudicates disputes on matters cov-ered by the Treaty of Rome�which covers many issues. Unlike the World Court (see pp. 256 - 258 ) , the European Court has actively established its jurisdiction and does not serve merely as a mechanism of i
The rst major revision of the Treaty of Rome�the 1985
Single European Act
�began a new phase of accelerated integration
...
The
Maastricht Treaty
, signed in the Dutch city of Maastricht in 1992, renamed the EC as the EU and committed it to further progress in three main areas. The rst was monetary union (discussed shortly), in which the existing national currencies were aboli
...
lisbon treaty
...
At the end of 2007, the EU moved forward with another new proposed constitution, the
Lisbon Treaty
. The treaty was similar to the previous constitution, but faced a popu-lar referendum only in Ireland. (Lisbon did not require more state-level votes since
...
this type of collective goods dilemma has been called the
tragedy of the commons
.
...
globl warming
long-term rise in the average world temperature. Growing and compelling evidence shows that global warming is a real prob-lem, that it is caused by the emission of carbon dioxide and other gases, and that it will get much worse in the future
ozone depletion
Ozone high in the atmosphere screens out harmful ultraviolet rays from the sun. Certain chemicals expelled by industrial economies float to the top of the atmosphere and interact with ozone in a way that breaks it dow
sustainable devolopment
This refers to economic growth that does not deplete resources and destroy ecosystems so quickly that the basis of that economic growth is itself undermined. The concept applies to both the industrialized regions and the global South.
devolopment and key role of capital devolopment
...
undernourishment
lack of calories
Traditionally, rural communities have grown their own food
subsitence farming
cash crops
agricultural goods produced for export to world markets.
In order for human populations and their capital to grow, they must produce an
economic surplus
by using capital to produce more capital. This is done by investing money in productive capital rather than using it for consumption. The more surplus an econo
...
The Industrial Revolution of several centu-ries ago greatly accelerated the process of world accumulation, drawing on large amounts of energy from fossil fuels. But industrialization has occurred very unevenly across the world regions. The North has accum
...
information technology now is making a fuel-burning infrastructure relatively less important in the advanced economies. The countries of the global South may need to pass through a phase of heavy industrialization, as countries in the North did, or perhap
...
colonialism
states takes opver another state and exploits original people there
strong currency makes imports more affordable, while a weak currency makes exports more com-petitive
...
Floating exchange rates
are now more commonly used for the world's major curren-cies. Rates are determined by global currency markets in which private investors and gov-ernments alike buy and sell currencies. There is a supply and demand for each state's
...
National governments periodically
intervene
in nancial markets, buying and selling currencies in order to manipulate their value. (These interventions may also involve changing interest rates paid by the government ; see p. 334 .) Such government interven
...
in the short term, exchange rates depend on speculation about the future value of cur-rencies. But over the long term, the value of a state's currency tends to rise or fall rela-tive to others because of changes in the long-term supply and demand for the
...
An
overvalued
currency, whose exchange rate is too high, creates a chronic trade decit. The decit can be covered by printing more money, which waters down the currency's value and brings down the exchange rate
...
exports less competitive when exchange rate goes up
...
But economies also contain
standing wealth.
The hard-currency reserves owned by governments are one form of standing wealth, but not the most important. Most standing wealth is in the form of homes and cars, farms and factories, ports and railroads. In pa
...
International integration: Process by which
supranational institutions replace national ones
european union
European Defense Community
Integrating Europe's military force under one budget
and command
� Political and military cooperation more difficult
� Signed by ECSC but not ratified by France and refused
by Britain
European Atomic Energy Community (Euratom)
Extended coal and steel idea to atomic energy
� Still operating today, expanded membership
european economic community
, later the
European Community (EC)
� Free trade area, customs union, common market
European Free Trade Association (EFTA): Extended free
trade area to Norway, Iceland, Liechtenstein, and Switzerland
...
Under the free trade area
first created by the 1957
Treaty of Rome, goods can
move freely across
European borders to reach
consumers in any member
country.
...
European Commission: O
Organizes Eurocrats, 27 individual
members � one from each state � 4-year renewable terms
� Identify problems and offer solutions to Council of EU
Council of the European Union
Ministers (politicians) from
each member state, control the bureaucrats (technical issues
mainly
European Council:
State leaders, implement policy at the
domestic level
European Parliament:
Limited legislative power; watchdog
over Commission
Economic and Social Committee:
Advisory body,
discusses continent-wide economic and social issues
european court of justice
supports treaty of rome
maastright treaty Further integration in three areas
Monetary union and common currency: Existing national
currencies abolished and replaced by single European currency
� Justice and home affairs: European police agency (EUROPOL)
� Political and military integration: Work toward common
foreign policy and jo
The Maastricht Treaty called
for a monetary union with a
common currency
...
Schengen Area:
Norway, Iceland, Switzerland
� Zone in which border controls have been abolished
lisbon treaty
(2007) Grapple with expanding EU, a new proposed
constitution
� Effort to updated European governance, implemented
2009
� Numerous changes to day-to-day EU operations
� Charter of human rights
� Gives national governments more say in who is
admitted to EU
Collective goods problems are easier to solve when
groups are small
2. benefits are high
3. solutions are relatively affordable
ozone depletion
Very high costs: Kills vegetation, reduces agricultural yields,
disrupts ecosystems
� Fairly affordable solutions: Costs of replacing CFCs lower
than costs of addressing global warming
Ozone Layer: High immediate benefits, low costs of
solutions
� Global Warming: Distant/potentially unclear benefits, may be
expensive
? Reciprocity solves collective goods problems
� Better when costs are low or tangible benefits are high
(ozone)
� Worse
...
Nearly a billion people in the global
South�most of them in Africa and
South Asia�live in abject poverty,
lacking safe water, housing, food,
and the ability to read.
...
Economic development is based on
capital accumulation
...
To develop economically, poor
countries must generate selfsustaining
capital accumulation.
...
Import substitution:
Developing local
industries to produce items that a country
had been importing
Export-led growth
Developing industries to compete in
the world economy
IMF Conditionality: An agreement to loan IMF funds on
the condition that certain government policies are adopted
� Cutting inflation, making country attractive for investors
� Usually painful for citizens (at least in short term) b/c
means cutting spendin
...
Dependency theory: A dependent country must borrow
capital to produce goods; accumulation of debt
undermines surplus accumulation.
...