Contemporary Issues in International Business Essay - 1

Contemporary Issues in International Business - Essay Example Thus, inter-dependency of states has become a critical factor that necessitates evolution of monetary system for currency exchange in the inter-state trade practices. In the post WWII era, Bretton Wood System had addressed the issue of international finance and currency relationship to promote stable trade amongst the countries. As a result, international agencies like International Monetary Fund (IMF) and World Bank had emerged. IMF’s major objective was to facilitate and promote international business and stabilize foreign exchange through balance of payment for countries that were unable to meet their debt payments. At the same time, World Bank provides grants and low interest or interest free loans on easy term to credit worthy under developed and developing countries in the areas of poverty alleviation, health, education, environment conservation, sustainable development etc. The bank gets its finance from the donation from its member countries and the repayment of loans and interest money. In the recent times, the roles of these two agencies have come under lot of criticism. Thus, the roles of IMF and World Bank need to be analyzed and evaluated for introducing to make them more effective in the contemporary environment of global values. IMF is primarily a monetary system that was created in 1944. The initiatives taken in the Bretton Wood System had promoted US dollars as major currency because at that time, America was economically strong and was seen as a major facilitator of economic growth and opportunities. Another major factor was that the dollar was backed by huge reserve of gold deposit in America. IMF provided the necessary impetus to the international trade and economic cooperation amongst nation through mechanisms that included multilateral system of payment by member countries, stability in foreign exchange and supporting economically weak member nations with short term problems of ‘balance of payment’. It had also extended long term funds to developing countries which had faced the balance of payments problem during the structural changes that were needed to promote the socio-economic development of the region. World Bank was also an important actor in the socio-economic development process of under developed and developing countries. While it extended soft term loans and grants to these countries, it is also a commercial lender and is not totally dependent on the developed nations for its financial viability. It has relatively huge foreign exchange reserve and is therefore able to meet its various obligations. But in the recent times, many of its creditors have failed to repay the loans. Oxfam has claimed for 100% debt relief to 33 highly indebted poor countries (Mallaby, 2004). At the same time, emerging new economies like India and China have developed huge foreign reserves of their own and rely less on these agencies for funds. Most importantly, the transforming global economy has disturbed the d ominant position of US dollars. The fast emerging economies like India and China have challenged the American monopoly in the global market. It has not only not remained a major donor to the international agencies but the deteriorating economic conditions of America with a large foreign debt and deficit account balance, have adversely impacted dollar. The fixed exchange rate of currency has collapsed under new market based economy. The diktats of free trade and liberalization of economies across the globe have become important factors that demand new mechanisms for creating mutually beneficial trade practices. With market enforced floating currency rates, the political legitimacy of IMF and World Bank has become highly controversial. These agencies need to redefine their goals vis-a-vis new market