Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Problems of economic liberalisation

The Dollar Glut & The Gold Pool
With the globalisation of the Cold War by the late 1950s, the USA stepped up its efforts to form alliances with other countries, exerting its economic might to convince foreign leaders to join its ideological cause. However, the outflow of USD to foreign economies eventually exceeded the amount of gold that backed the monetary system.

For instance, the central banks of Western European nations and Japan had accumulated USD, building up their currency reserves. Central banks in turn could exchange these dollars for gold, threatening the stability of the system.

But as these ratios began to shift, confidence began to erode in the credibility of the American commitment to dollar convertibility and thus in the structure of the Bretton Woods system. By the end of 1959, the United States’ money gold stock had been surpassed in value by foreign-held external dollar liabilities. By 1965, America’s stock of gold reserves had been surpassed by the external dollar liabilities held by foreign monetary authorities. Foreign investors, both official and private, had growing grounds for questioning the ability of the United States to continue honoring its commitment to convert these liabilities into gold at a fixed price.

An excerpt taken from “Global Imbalances and the Lessons of Bretton Woods” by Barry Eichengreen.

On 1 November 1961, the central banks of the USA and seven other European nations (Germany, United Kingdom, Switzerland, Netherlands, Belgium, Italy and France) created the London Gold Pool. By doing so, the fixed exchange rate system under the Bretton Woods could be maintained by keeping the price of gold stable.

However, the Gold Pool eventually collapsed in March 1968 as the pegged price of gold remained low such that France withdrew from the collaboration.

The Dilemma
Belgian-American economist Robert Triffin revealed a flaw in the international monetary system.

If the USA stopped running its balance of payment deficits, the global economy would face a liquidity crunch. This would then plunge the economy into a contractionary spiral.

If the USA continued to run its balance of payment deficits, the global economy would continue to grow. However, the dollar glut problem would gradually erode confidence in the US dollar. Over time, the view of the US as a reliable reserve currency would fade, thus causing the gold-dollar fixed exchange rate system to collapse.

One the one hand, US spending in the rest of the world was viewed as a positive thing as it provided a pool of dollars outside the US which could be used to finance trade and fuel economic growth the world over; the dollar was the world’s key currency and uniquely acceptable everywhere.

However, on the other hand, the size of the dollar pool raised questions about the currency’s convertibility into gold and suggested a growing confidence problem for the dollar that could only be eased if US spending overseas was dramatically reduced. Thus there was a dollar confidence crisis looming if US spending overseas continued, and a world liquidity crisis likely if US spending was curtailed: a dilemma indeed.

An excerpt taken from “The Euro Its Origins, Development and Prospects” by Chris Mulhearn and Howard R. Vane.

True enough, the fears of an impending collapse of the international monetary system were realised on 15 August 1971.

What can we learn from this article?
Consider the following question:
– How far do you agree that the USA was a driving force in shaping the development of the global economy in the 20th century?

Join our JC History Tuition to learn more about the Global Economy. The H2 and H1 History Tuition feature online discussion and writing practices to enhance your knowledge application skills. Get useful study notes and clarify your doubts on the subject with the tutor. You can also follow our Telegram Channel to get useful updates.

We have other JC tuition classes, such as JC Math Tuition and JC Chemistry Tuition. For Secondary Tuition, we provide Secondary English Tuition, Secondary Math tuition, Secondary Chemistry Tuition, Social Studies Tuition, Geography, History Tuition and Secondary Economics Tuition. For Primary Tuition, we have Primary English, Math and Science Tuition. Call 9658 5789 to find out more.

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Reasons for growth of the global economy

Historical context: Disagreements over the MFN
Before the Generalised System of Preferences (GSP) was introduced in 1971, member nations in the developing world had concerns over the “most favoured nation” (MFN) concept. In particular, these countries argued that the MFN disincentivised more advanced counterparts from supporting tariff reductions and eliminations.

The most-favored-nation (MFN) clause embodied in article I of the General Agreement on Tariffs and Trade (GATT) was the defining principle for a system that emerged in the post-World War II era, largely in reaction to the folly of protectionism and managed trade that contributed to the global economic depression of the 1930s.

An excerpt taken from “Trade Preference Erosion: Measurement and Policy Response” by Bernard M. Hoekman, Will Martin and Carlos Alberto Primo Braga.

About the Generalised System of Preferences
In 1971, the GSP was introduced as part of the General Agreement on Tariffs and Trade (GATT). It functions as a system that grants products that came from developing countries lower tariff rates than those enjoyed under the MFN status. Ideally, the GSP was meant to boost export growth of developing countries and thereby advance economic development.

Unlike trading partners under the MFN status, the GSP features preferential tariffs that apply not only to countries with distinct historical and political relationships, but also to developing nations in general. Examples of such relationships can be observed in the case of US pro-trade policies with its Cold War allies in Asia, such as Japan.

Japan’s GSP
On 1 August 1971, Japan established the GSP, a month after the European Community had done so. The GSP scheme featured two regimes, namely the general preferential regime and a special preferential regime. The first type applies to preferential tariffs on import of designated items that originated from GSP beneficiaries. The second type focuses on duty-free treatment granted to import of designated items that came from least developed countries.

In principle, GSP preferences are not granted in the agricultural-fishery sector, given the weak competitiveness of Japan’s domestic industries. Items that are covered under the GSP are enumerated in a Positive List. Safeguards enable the government to suspend preferential treatment for items on the Positive List under certain conditions.

An excerpt taken from “Trade Preference Erosion: Measurement and Policy Response” by Bernard M. Hoekman, Will Martin and Carlos Alberto Primo Braga.

What can we learn from this article?
Consider the following question:
– How far do you agree that the Generalised System of Preferences have worked effectively in promoting trade liberalisation?

Join our JC History Tuition to learn more about the Global Economy. The H2 and H1 History Tuition feature online discussion and writing practices to enhance your knowledge application skills. Get useful study notes and clarify your doubts on the subject with the tutor. You can also follow our Telegram Channel to get useful updates.

We have other JC tuition classes, such as JC Math Tuition. For Secondary Tuition, we provide Secondary English Tuition, Secondary Math tuition, Secondary Chemistry Tuition, Social Studies Tuition, Geography, History Tuition and Secondary Economics Tuition. For Primary Tuition, we have Primary English, Math and Science Tuition. Call 9658 5789 to find out more.