Global Integration and International Finance

Introduction

World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank are three International Financial Institutions created to build a thriving economic environment which would enable world trade and growth of the country’s living and working standards, and all the financial benefits that these features bring with them.

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Analysis

All three of them trace their roots to the years immediately following the end of the Second World War. WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which were aimed towards reducing tariffs on global trade. The World Trade Organization superseded the GATT in 1995 as an intergovernmental institution but retained the latter’s goals of promoting, monitoring, and directing international free trade and a viable, thriving world market.

International Monetary Fund (IMF) and World Bank were also founded in the wake of the Second World War, and are part of the Bretton Woods system of monetary management. Its short term goal was to facilitate the rapid restoration of the newly formed United Nations member countries in the post-war economic situation and to help the countries restructure their economies for peacetime. In the long run, they were created to regulate international finance (monetary relations) between independent countries and were conceived as a guarantee of continuing world peace, as a result of collaborative movement towards prosperity and global integration (Helleiner 2014).

There are several exchange rate systems available today. The first one is the floating exchange rate, which is “self-correcting” and is determined by supply and demand in the private market. The second one is the fixed exchange rate, which is set by the government or another governing facility and is estimated according to a major world currency (Dollar, Euro, and some others depending on the region). While there were several attempts to establish a shared exchange rate system for all nations, they were abandoned first due to gold failing as a standard, and then due to the Dollar not being able to hold the value of gold, it needed to provide stability to other currencies (Heakal, R n.d.).

In the wake of the failure of fixed exchange rates, the role of the WTO, the World Bank, and IMF became to regulate international financial dealings by providing regulations on exchange control and rates, facilitating intergovernmental loans and major transactions (Rugman & Collinson 2012).

A major concern about these countries is that while these organizations are independent on paper, their purpose is to act in favor of their member states. As a result, their decisions are often dominated by the most powerful member countries, which puts the validity of the organizations’ actions in questions, particularly when dealing with developing countries. This situation cannot be easily amended because the institution’s independence and freedom of operations are limited by treaties signed between countries (Hunter& Bradlow 2011).

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The World Bank and the IMF often impose regulations that can cause the state to lose some of its ability to govern its economy outside of the pre-determined policies. Their efforts to achieve global integration lead to the privatization of nationalized industries or the inability to compete with the foreign markets. As a result, developing countries are forced to specialize in basic productions as their more developed productions are overtaken with outside services and goods (Andrei 2014).

This increases the gap between the rich and the impoverished countries even further, shaping the perception of the discussed IFIs as “clubs” of rich nations. This naturally generates hostility, especially since the countries with the highest growth rates are those who refused the conditions of the free trade imposed by the World Bank and other organizations and turned to regulated protectionism instead, as in the example of Brazil (Bazuchi et al. 2013).

References

Andrei, LC 2014, ‘Economic Convergence, Part of Advanced European Integration, Internal Auditing & Risk Management, 9, 2, pp. 13-21, Business Source Complete, EBSCOhost. Web.

Bazuchi, K, Zacharias, S, Broering, L, Arreola, M, & Bandeira-de-Mello, R 2013, ‘The role of home country political resources for Brazilian multinational companies’, BAR – Brazilian Administration Review, vol. 10, no. 4, pp. 415-438, Scopus®, EBSCOhost. Web.

Heakal, R. n.d., Currency Exchange: Floating Rate Vs. Fixed Rate. Web.

Helleiner, E 2014, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order, Cornell University Press, Ithaca.

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Hunter, DB, & DD, Bradlow 2010, ‘Introduction’, In International Financial Institutions and International Law, pp. xxv-xxiii. Alphen Aan Den Rijn: Kluwer Law International. Web.

Rugman, A. & Collinson, S 2012, ‘International financial markets and institutions’, in International business, New York: Pearson, pp. 199-242. Web.

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