Financial Crisis The global economy has adopted many different international monetary structures to stabilize economies. States struggle to decide between a combination of two of three major monetary objectives - capital mobility, fixed exchange rates, and sovereign monetary policy. The global economy has adopted several forms in recent history, however, these structures have been conducive to financial crises. The collapse of the Gold Standard, the Interwar Period, the collapse of the Bretton Woods system, and the 2007-2010 recession have all been crises that have shaped the international monetary structures. The misuse of economic fundamentals is the key reason for how and why financial crises occur. The Gold Standard was adopted
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This period was called the interwar period, between 1918-1939. During this period there was little to no trust between nations; nations had depleted their gold stocks, governments control was highly eroded, and there was no monetary structures. The interwar period was a monetary crisis because there was no global stability and many problems arose. One of the problems was trade rivalries; countries were limited with their ability to trade with foreign countries. The war create a global divide between countries who supported the Allies and those who supported the Central Powers. In result, countries did not trade with enemies, and Germany even went as far as blocking the US from shipping supplies to Allies during the war. The global rivalries made it impossible to settle disputes and come together to create a new monetary structure. As trade was affected by rivalries, low convertibility affected trade as well. For the countries that were able to trade, converting one currency to another was difficult because the currencies were not pegged to gold or any other standard (O.203). The exchange rate during this time is called the floating exchange rate; the floating exchange rate had no limits on how much a currency can move in a market (O. 203). Only governments that favor domestic autonomy, prefer floating exchange rates rather than stable exchange rates. These fluctuated exchange rates allowed countries …show more content…
The interwar period struggled due to no monetary structures and economic fundamentals. The instability of exchange rates combined with post war economies created financial crisis. The interwar period lead to some of the worst financial crisis such as the Great Depression. The war created high levels of debt, inflation, and unemployment, leading to a global downturn. The Great Depression lasted until new economic policies were created by FDR, and when a new monetary structure was
This period was called the interwar period, between 1918-1939. During this period there was little to no trust between nations; nations had depleted their gold stocks, governments control was highly eroded, and there was no monetary structures. The interwar period was a monetary crisis because there was no global stability and many problems arose. One of the problems was trade rivalries; countries were limited with their ability to trade with foreign countries. The war create a global divide between countries who supported the Allies and those who supported the Central Powers. In result, countries did not trade with enemies, and Germany even went as far as blocking the US from shipping supplies to Allies during the war. The global rivalries made it impossible to settle disputes and come together to create a new monetary structure. As trade was affected by rivalries, low convertibility affected trade as well. For the countries that were able to trade, converting one currency to another was difficult because the currencies were not pegged to gold or any other standard (O.203). The exchange rate during this time is called the floating exchange rate; the floating exchange rate had no limits on how much a currency can move in a market (O. 203). Only governments that favor domestic autonomy, prefer floating exchange rates rather than stable exchange rates. These fluctuated exchange rates allowed countries …show more content…
The interwar period struggled due to no monetary structures and economic fundamentals. The instability of exchange rates combined with post war economies created financial crisis. The interwar period lead to some of the worst financial crisis such as the Great Depression. The war created high levels of debt, inflation, and unemployment, leading to a global downturn. The Great Depression lasted until new economic policies were created by FDR, and when a new monetary structure was