ST.

LOUIS COLLEGE VALENZUELA

Maysan, Valenzuela City
COLLEGE DEPARTMENT

GE 5 – The Contemporary World

Module 2.1
The Structures of Globalization
The Global Economy and Market Integration

Learning Outcomes
At the end of this module, you should be able to:

∙ Underline the importance of a globalized economy.

∙ Recognize the importance of Bretton Woods Agreement and System.

Introduction and Engagement

“Globalization is an immense global opportunity, for each and every

continent, because it forces us to act together with other. The
alternative to globalization would be shutting ourselves off from others,
but this is not a viable alternative. It would lead only to isolation and
therefore misery” – German Chancellor Angela Merkel

Under the ambit of globalization, the increasingly interconnected global economy is being
shaped not just by governments but also by various multinational institutions as well as
multinational corporations (MNCs). Governments continue to shape domestic policies to be
business-friendly, MNCs provide the necessary the investment and capital to further
capitalism, and multinational institutions aim to offer frameworks of cooperation among all
stakeholders including governments and MNCs.

Contemporary economic globalization has its roots in the institutionalization of monetary

systems or the means of international payments. Before the advent of contemporary
system of exchanges like the use of money, primacy of banks, and online shopping, the
medium of exchange was precious minerals like silver and gold. For a while, currencies, like
the Philippine peso, are pegged in the value of gold (“The Gold Standard”) and this was
done to facilitate trade easier and make world trade more predictable and measurable.
Eventually, after the collapse of the gold standard following Europe’s decline
due to World War I, countries started to look inward and promised their citizens that they
will focus first on their own economies and production of own products instead of
participating in the growing trade market. This economic pressure for the countries to
expand but without the full blessing of free market and democracy resulted to World War II
that devastated the world once again just twenty years after the first world war.

In this module, we are going to discuss the post-World War II order that (1) aims move
away from policies that influenced the commencement of previous world wars, (2) defines
the prevailing global cooperation and (3) the key driver of the intertwining of economies of
all nations around the world: The Bretton Woods System.

To better guide your learning journey, the please take note of the following terms and
concepts and don’t hesitate to add as you read/watch through the readings, presentation,
and audio-visual materials provided.

*Market Integration *Loans *Aid/Credit

Feel free to add more important terms as you delve into additional materials in the
references section.

Presentation of the Topic/s

Kindly see the resources/references uploaded in the Google Classroom or in our Facebook
Group, including the Class Syllabus.

In 1944, 44 capitalist countries led by the United States met at Bretton Woods, a town in
New Hampshire, to agree on the creation of “an international basis for exchanging one
currency for another. It also led to the creation of the International Monetary Fund (IMF)
and the International Bank for Reconstruction and Development (IBRD), now known as the
World Bank (WB). The former was designed to monitor exchange rates and lend reserve
currencies to nations with trade deficits, the latter to provide underdeveloped nations with
needed capital with the member nations contributing a membership fee to fund these
institutions; the amount of each contribution designated a country’s economic ability and
dictated its number of votes.

The establishment of the Bretton Woods system further stimulated international trade and
financed postwar reconstruction, as the member states agreed to fix their exchange rates
by tying their currencies to the US dollar. From then on, the US dollar became the world’s
leading, if not unchallenged, international currency.
The Bretton Woods System effectively came to an end in the early 1970s when US President
Richard M. Nixon announced that the US would no longer exchange gold for US currency.
Though the System was dissolved, both the IMF and World Bank still remain strong pillars
for the exchange of international currencies.

World Bank
At Bretton Woods the international community assigned to the World Bank the aims
implied in its formal name, the International Bank for Reconstruction and
Development (IBRD), giving it primary responsibility for financing economic
development. The Bank's first loans were extended during the late 1940s to finance
the reconstruction of the war-ravaged economies of Western Europe. When these
nations recovered some measure of economic self-sufficiency, the Bank turned its
attention to assisting the world's poorer nations, known as developing countries, to
which it has since the 1940s loaned more than $330 billion. The World Bank, which
has 189 member countries, has one central purpose: to promote economic and social
progress in developing countries by helping to raise productivity so that their people
may live a better and fuller life. The WB has five member-institutions: (a) The
International Bank for Reconstruction and Development (IBRD); (b) The International
Development Association (IDA); (c) The International Finance Corporation (IFC); (d)
The Multilateral Investment Guarantee Agency (MIGA); and (e) The International
Centre for Settlement of Investment Disputes (ICSID).

International Monetary Fund

The international community assigned to the IMF a different purpose. In establishing
the IMF, the world community was reacting to the unresolved financial problems
instrumental in initiating and protracting the Great Depression of the 1930s: sudden,
unpredictable variations in the exchange values of national currencies and a
widespread disinclination among governments to allow their national currency to be
exchanged for foreign currency. Set up as a voluntary and cooperative institution, the
IMF attracts to its membership nations that are prepared, in a spirit of enlightened
self-interest, to relinquish some measure of national sovereignty by abjuring practices
injurious to the economic well-being of their fellow member nations. The rules of the
institution, contained in the IMF's Articles of Agreement signed by all members,
constitute a code of conduct. The code is simple: it requires members to allow their
currency to be exchanged for foreign currencies freely and without restriction, to
keep the IMF informed of changes they contemplate in financial and monetary
policies that will affect fellow members' economies, and, to the extent possible, to
modify these policies on the advice of the IMF to accommodate the needs of the
entire
membership. To help nations abide by the code of conduct, the IMF administers a
pool of money from which members can borrow when they are in trouble. The IMF is
not, however, primarily a lending institution as is the Bank. It is first and foremost an
overseer of its members' monetary and exchange rate policies and a guardian of the
code of conduct. Philosophically committed to the orderly and stable growth of the
world economy, the IMF is an enemy of surprise. It receives frequent reports on
members' economic policies and prospects, which it debates, comments on, and
communicates to the entire membership so that other members may respond in full
knowledge of the facts and a clear understanding of how their own domestic policies
may affect other countries. The IMF is convinced that a fundamental condition for
international prosperity is an orderly monetary system that will encourage trade,
create jobs, expand economic activity, and raise living standards throughout the
world. By its constitution the IMF is required to oversee and maintain this system, no
more and no less.

The International Monetary Fund and the World Bank at a Glance

IMF
∙ Oversees the international monetary
system.
∙ Promotes exchange stability and
orderly exchange relations among its
member-countries.
∙ Assists all members—both industrial
and developing countries—that find
themselves in temporary balance of
payments difficulties by providing
short-to
medium-term credits.
∙ Supplements the currency reserves of
its members through the allocation
of SDRs (special drawing rights).
∙ Draws its financial resources principally
from the quota subscription of its
member countries.
∙ Has as its disposal fully paid-in quotas
now totaling SDR 145 billion (about
$215 billion).
WB
∙ Seeks to promote the economic
development of the world's
poorer countries.
∙ Assists developing countries through
long-term financing of
development projects and
programs.
∙ Provides to the poorest developing
countries whose per capita GNP is
less than $865 a year special
financial assistance through the
International Development
Association (IDA).
∙ Encourages private enterprises in
developing countries through its
affiliate, the International Finance
Corporation (IFC).
∙ Acquires most of its financial
resources by borrowing on the
international bond market.
∙ Has a staff of 2,300 drawn from 182
member countries.
World Trade Organization about 10 percent
∙ Has an authorized capital of $184 ∙ Has a staff of 7,000 drawn from 180
billion, of which members pay in member countries.

Another important multinational organization that helped in jumpstarting Globalization as

we know it today is the World Trade Organization (WTO). Its forerunner is the General
Agreement on Tariffs and Trade (GATT) was created on 30 October 1947 by 23 nations to
make international trade easier by (a) minimizing barriers to international trade; and (b)
eliminating or reducing quotas, tariffs, and subsidies. The GATT aimed to boost global
recovery and liberalized global trade in the aftermath of the destruction of World War II.

In 1995, the World Trade Organization supplanted the GATT and was established to oversee
the global trade rules for its 164 member countries as of 2019 which accounts for 98% of
global trade. Like GATT it pursues open borders for trade, guarantee most favoured-nation
(equal tariffs to all members), and serves as an alternative dispute mechanism for member
nations trying to sort out trade issues. With the aim to uphold the international trade rules,
the WTO is also a venue for member governments to negotiate and resolve trade issues
with other trade members.

Why are global trade rules important? According to WTO, global trade rules provide
assurance and stability. Consumers and producers know they can enjoy secure supplies and
greater choice of the finished products, components, raw materials and services they use.
Producers and exporters know foreign markets will remain open to them. This leads to a
more prosperous, peaceful and accountable economic world. Decisions in the WTO are
typically taken by consensus among all members and they are ratified by members’
parliaments. Trade frictions are channeled into the WTO’s dispute settlement process,
where the focus is on interpreting agreements and commitments and how to ensure that
members’ trade policies conform with them. That way, the risk of disputes spilling over into
political or military conflict is reduced.

Specifically, the WTO’s functions are as follows:

∙ Administering trade agreements;
∙ Acting as a forum for trade negotiations;
∙ Settling trade disputes;
∙ Reviewing national trade policies;
∙ Building the trade capacity of developing economies; and
 ∙ Cooperating with other international organizations.

The WTO is currently headed by Director-General Roberto Azevedo with its headquarters
located at Geneva, Switzerland.

Summative Assessment

I. Modular Task
A. Answer the following questions using your own understanding that can be
backed up by authoritative sources that you are expected to explore in this
class.

1. Discuss the important innovation in the global economic system brought by

the Bretton Woods agreement?
2. List down at least three (3) countries assisted by the World Bank and the IMF
and issues solved by the two organizations for these nations.
3. What is the role of the Philippines in the World Bank and the IMF? What are
our contributions, if any?
4. Is the Philippines member of the WTO? If yes, discuss how the Philippines
became a member of this organization.

II. Self-Reflection
Answer the following questions in at least five (5) sentences for each. Make your
answers comprehensive and truly reflective of your existing ideas and new
concepts learned in the class.

1. How will the World Bank and the IMF help the world recovers from COVID 19?
2. What are the intended projects/programs of the loans issued by IMF and the
World Bank to the Philippines? How much are these loans? How do you see
these loans as critical in the country’s preparation for the new normal?
3. How do you approach debts? Are incurring debts necessary? Is it beneficial or
not? Explain your answer.
4. Does the Philippines have a pending case in the WTO? If yes, briefly describe
said case.
Reference:
Chen, J. (30, April 2020). Bretton Woods Agreement and System. Retrieved from
Investopedia:https://www.investopedia.com/terms/b/brettonwoodsagreement.
asp

Driscoll, D. D. (n.d.). The IMF and the World Bank: How Do They Differ? Retrieved from
 International Monetary Fund:
https://www.imf.org/external/pubs/ft/exrp/differ/differ.htm

Official website of the World Trade Organization (WTO)

San Juan, D. M. (2018). Journeys through Our Contemporary World. Quezon City: Vibal
Group Inc.

Whoe We Are. (n.d.). Retrieved from World Bank: https://www.worldbank.org/en/who

we-are

Additional Readings:

A Brief History of International Trade Agreement by Matthew Johnson

Url: https://www.investopedia.com
/articles/investing/011916/brief-history-international-trade-agreements.asp

World Bank Group Partnership with the Philippines: Country Program Evaluation (PDF)
Url: https://ieg.worldbankgroup.org/
sites/default/files/Data/Evaluation/
files/PhilippinesCPE.pdf

Multimedia Content:

(1) Is Free Trade Bad for the Economy? (3 mins)

Url: https://www.youtube.com/
watch?v=M4Sz1NNvepk

(2) What is the International Monetary Fund? (4 mins)

Url:https://www.youtube.com/
watch?v=MhrC2_Hak08

(3) What does the World Bank Actually Do? (4 mins)

Url: https://www.youtube.com/
watch?v=F59fF-xu-bY
Graded Recitation

(4) Looking Back at 20 years of multilateral trade (5 mins)

Url: https://www.youtube.com/
watch?v=KKi0lW3boqE