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‘To What Extent Can the Period 1945-70 Be Termed the Pax Americana With Regard To the Management of the the international economy?

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Introduction

LONDON GUILDHALL UNIVERSITY DEPARTMENT OF ECONOMICS ES325 INTERNATIONAL ECONOMIC HISTORY SINCE 1870 Essay title, 'To what extent can the period 1945-70 be termed the Pax Americana with regard to the management of the international economy' By: Abzar Choudhury Author: Abzar Choudhury Student ID: 97/281-766 Date: 26/04/00 Word count: 2,279 Pax Americana The Roman Empire evolved from centuries of hard labour and intellectual economic co-ordination such as their road networks of which the remains that has still survived in Europe and Asia to this present day is no comparison to the development of the Bretton Woods agreement of 1944. Although, the old Bretton Woods agreement had a short life, which lasted from 1944 to 1971, the period of 1945 to 1970 can certainly be termed the 'Pax American' with regard to the management of the international economy. The period as mentioned above with regard to the Bretton Woods agreement is termed 'Pax American' because America was the main driving force behind the management of the international economy. Now, the questions we should be asking are how was America able to lead the international economy and was it successful? Following the experience of disharmony during the 1930s let to the establishment of the Bretton Woods system after a NU's Conference that took place during July of 1944 at Bretton Woods, New Hampshire, USA. ...read more.

Middle

This money had to be repaid by surrendering 'domestic currency to the Fund equal in value to the foreign currencies drawn', (Kenwood, 1992). As the system evolved, a number of conventions were established concerning the operation of the Fund. If borrowing began to exceed a nation's original quota, increasingly serious conditions would be imposed on any further borrowing and would be enforced by the Fund's officials. This made the IMF a highly complex system and some would argue for it to be made more decentralised. The second institution that was set up at the UN's Conference in Bretton Woods during 1944 was the International Bank for Reconstruction and Development (IBRD), otherwise know as the World Bank. Although the Bank was set up during 1944, it did not commence operation until 1947. The Bank was responsible for providing long-term finance and 'investment for productive purposes' (Ashworth, 1962), such as post-war reconstruction and development to member nations, so that they could rebuild their economic infrastructure such as roads, irrigation and energy intensive industries, etc., but finance was only available if the Bank's officers felt that the finance would strengthen the economy of that country. This Bank was hardly used by the European and the North American countries, because the western countries received help from the US through the Marshall Plan, which was also known as the European Development Programme (EDP). ...read more.

Conclusion

It was able to do this by extracting gold from the earth. But even this method did not help to increase the gold reserve, because the supply of US gold was inadequately short to meet the demand for the rapidly expanding volume of international trade and finance. This lead America to draw down its gold reserves to finance its balance of payments deficits. It also financed the deficits through growing foreign holdings of American dollars which was 'as good as gold' (McConnell, 1987) until 1971, the end of 'Pax Americana'. With the US persistently running balance of payments deficits, people questioned, whether the dollar was really 'as good as gold' (McConnell, 1987), and if the dollar was to remain the main medium of exchange, the payments deficits had to be eliminated. 'But success in this endeavour would limit the expansion of international reserve or liquidity and therefore tend to restrict the growth of the international trade and finance' (McConnell, 1987). Today we learn that the end of the 'Pax Americana' with respect to the management of the international economy came following the collapse of the Bretton Woods system during 1971, when President Nixon allowed the US dollar to freely float on the international money market, thereby, allowing its value to be determined by market forces. Hence, the withdrawal from the Bretton Woods system ended the prolong periods of balance of payments difficulties with respect to the American economy. ...read more.

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