Elements of Post-1945 Liberal International Economic Order

(peace depends on international prosperity)

 

Trade Regime

Monetary Regime

Development Regime

(GATT/WTO)

(IMF)

(World Bank)

Liberal trade promotes economic growth

Fixed exchange rates increases world trade

Economic growth reduces poverty

 

 

Under pre-1971 Fixed Rate monetary regime:

1 Troy Ounce of Gold = US $35

All other currencies pegged to the dollar.

Prices across countries would be stable, making trade and investment safer.

With end of convertibility of dollars to gold (1971), the basis for the fixed exchange regime was lost.

By 1975, currencies "float" depending on market transactions. Central banks intervene to lower and raise the value of currencies relative to each other. Currencies appreciate or depreciate compared to another currency.