Economic events Essay Example | Topics and Well Written Essays - 2000 words

Economic events - Essay Example Such historical instances of oil shocks had subsequent implications on the world’s economy in diverse ways. From observations of oil supply disruptions for over almost six decades now, from 1944, it is incontrovertible that high oil prices have been the significant cause of world’s major economic recessions. Introduction of Bretton Woods system was one of the post-war reconstruction initiatives undertaken by world leaders from over one hundred states. It is remarkable that the U.S dollar dominated during the world war for being very powerful against other currencies. The Bretton Woods system, a decision made in 1944, allowed for the exchange of different currencies. The conference also resolved to form the IMF. The World Bank was among the institutions formed during the conference. The IMF was created for the function of monitoring the different countries’ rates of exchange. It also served as an institution mandated to lend reserve currencies. The decision was to help countries with deficits to evade any circumstances that would cause devaluation of the country's currency and cause instability. The World Bank’s mandate was to issue capital needed to the underdeveloped countries as part of post-war reconstruction of the global economy. ... By the end of the second war, the U. S still experienced a relatively stable economic state compared to other countries. All the nations, therefore, decided to trade in dollar which was pegged to gold. The United States expressed its dedication to redeeming the international holdings of the dollar. The rate set was thirty-five dollars per ounce. This was the greatest reason for the stability in the financial system experienced after 1944. The gold standard set in 1944 ensured stability in the rates of exchange. Under the Bretton Woods system, there were exclusively limited conditions that would call for a reform of the value of gold in relation to the currency of any country. It led to the ceiling of the domestic money supply of every country. The 1970s, however, presented several challenges to the U.S currency following several economic conditions, which brought in many challenges to the stability of the dollar. There were the economic effects of the Vietnam War, for instance. The U .S, in 1971, made the decision that was later to have an effect on the entire world economy and cause a collapse of the stability that prevailed since 1944. Without consultations, the U.S disregarded the gold standard set in 1944. Floating rates started to function as compared to fixed rates after the uplifting of the pegging. Market trading remained the determinant of the currency value of all currencies. The effects of uplifting of the pegging on the oil price had extensive implications and were a cause of instability. Since the dollar is the global currency used in the crude oil market, a weak dollar would attract a high price of oil. An example is the high price of gasoline that