Economics _ Whither the Dollar Essay Example | Topics and Well Written Essays - 1250 words

Economics _ Whither the Dollar - Essay Example Both see the necessity for international cooperation in determining currency exchange rates under appropriate circumstances and both provide the ability to alter exchange rates under certain circumstances. However, they also recognize the destructive aftermath of freely flexible exchanges on international trade and economic relations generally, and their chief purpose is to create and maintain a system of stable exchange rates. And yet, the Keynes’ system had some radical ideas that went completely contrary to White's conservative plan. Unlike White's theory, where member-countries would deposit their currencies, and together with the government fund then provide the currencies needed by each country for settling its international account, the Keynes’ plan provides an international clearing, where no funds are deposited. Instead, international payment would be effected by debiting the paying country and crediting the receiving country on the books of the union. (The Key nes’ and White Plans) Keynes proposed the establishment of: an International Clearing Union, based on international bank money, called (let us say) bancor , ?xed (but not unalterably) in terms of gold and accepted as the equivalent of gold by the British Commonwealth and the United States and all members of the Union for the purpose of settling international balances. (Keynes, 1980, p.121) The basic idea is simple. Countries would have accounts that would play the same role as reserves, (mainly gold in the early 20th century) and dollars or other foreign exchange currencies. With the account at the International Clearing Union countries do not have to shore up these reserves. They are free to take a loan from the International Clearing Union in times of need and lend if they export more than they import. The de?ation bias caused by trapped reserves, which cannot turn into meaningful demand, would disappear. To prevent accumulation credits or debits Keynes also suggested some measures so in the long run the system self-balance itself. The outcome of the negotiations was the new Bratton Woods system. This system incorporated points, where both plans agreed. Yet, because of the USA's greater negotiating strength, the final decisions of the new system were closer to the conservative plans of Harry Dexter White. According to US economist Brad DeLong, on almost every point where Keynes’ ideas were canceled by the Americans, he was later proved correct by events of history. The Primary Real Causes of the Financial Crisis of 2008 According to the article â€Å"Whither the Dollar† by Katherine Sciacchitano, there are a few reasons and events, which triggered the beginning stages of the financial crisis of 2008. The first is the elimination of capital control. This deepened economic stability in many ways: - It made it easier for capital to search for the lowest possible wages; - It increased the political power of capital by enabling it to â€Å"v ote with its feet† - It fed asset bubbles, increased financial speculation and exchange rate bounce. This increased unregulated capital mobility and speculation weakened the real economy, further exhausted global demand and increased economic instability. As we can see from history, from the eighties on up in countries all around the world an economic crises have occurred about every five years. Another reason of the 2008