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Fall of Bretton Woods Fall of Bretton Woods Berkeley model united nations Introductions Hello delegates, My name is Madeleine Valdez and I am the head chair of the Bretton Woods committee for BMUN LXVIII. I am a senior here at UC Berkeley studying Political Economy (and Art) and have been a member of this secretariat for all four years I’ve spent here. This will be my eighth – and likely last – year of being involved in Model United Nations overall and I am so glad that I have the opportunity to use this crisis committee as a mechanism for teaching you all about something very dear to my heart: monetary policy. Many of us who are veterans of crisis committees are too often obsessed with the aggres- sive action-oriented responses to crises. The situations we are concerned with seem to be all about political bargaining or military strategy. I am hoping that this committee will refect the real world by requiring you all to be vigilant in your planning for the future while necessitating adaptation to eco- nomic crises. A little bit extra about me: I am a native of the San Francisco Bay Area and love this place with all my heart. During college, I studied abroad in Madrid and had the opportunity to visit many other large cities around the world. These real-world experiences have informed my major concentration in Urban Development and Globalization, two topics that will defnitely infuence this committee. In my free time, I love to paint and draw, read, watch good movies, and eat good food. My vice chair, Sachit Shroff, is a fourth-year computer science student with a passion for pol- itics and international relations. This conference also marks his eighth year of MUN, and he’s look- ing forward to a weekend he knows will be flled with lots of exciting debate and creative solutions. When he’s not working or updating himself on the news, Sachit loves to procrastinate by repeatedly watching and reading Lord of the Rings, Harry Potter, and the like an ungodly number of times. Anish is a junior at UC Berkeley majoring in Computer Science and this will be his eighth year of MUN. He is from Hyderabad, India, although he did live in Los Altos, California for his frst half a decade. In his free time, he enjoys playing and watching soccer, reading Stephen King novels and trying to fnd good Indian restaurants in Berkeley (none so far, unfortunately). Pari Parajuli is a freshman from the northern Virginia area. She’s done MUN for around 6 years and is so excited to be a part of BMUN in college. She’s planning on doing a major related to berkeley model united nations 1 computer science and data science with a little public policy thrown in there if she gets the chance! Outside of school, she loves to dance, sketch, cook. She also spends an unhealthy amount of time eating out at places she really can’t afford and watching TV shows. We are all so excited to meet you all in March for BMUN LXVIII! Madeleine Valdez Head Chair, Bretton Woods Topic A: The Fall of the Bretton Woods Regime Welcome Letter It is the beginning of 1971 and the disruption of the international monetary system is immi- nent. For decades, nations all over the world joined together under the system established by the Bretton Woods Conference in 1944, which created the International Monetary Fund and the World Bank to regulate the global economy. But recent whispers have said that everything is about to change. The inability of the United States to carry the stability of the world’s currencies means that this system is unsustainable. World leaders are calling together a conference, a second gathering of the Bretton Woods stakeholders, to discuss the imminent fall of the system. It will begin March 6, 1971 and will end on March 27, 1971. Delegates will be asked to consider the weaknesses and strengths of the system, what changes need to be made, and how to structure the international monetary system moving for- ward. The implications of the decisions made in this year, a turning point in the world economy, are sure to ripple out in the decades to come, dictating the future of the global community, and deter- mining the fnancial practices that the next phase of development will be built on. “The diffculty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.” John Meynard Keynes in “The General Theory of Employment, Interest and Money” 1936 berkeley model united nations 2 Topic Background The events leading up to the Bretton Woods Regime show how the instability in the world was causing concerns in the international community. The increasing interconnectedness created an environment where the actions of one country inevitably would affect another without those actions being checked or regulated. Industrialization changed ideas about productivity and the market, infuencing international trade by widening the gap between one country’s capabilities and anoth- er’s. The establishment of an early international monetary system revealed the fragility of the global community and World War I showed how easily the status quo could be disrupted. By examining the history leading up to the Bretton Woods Conference, we can better understand the decisions that delegates made concerning how to regulate the international monetary system and the consequenc- es of those decisions as time went on. Key Events Nineteenth-Century Global Connections The nineteenth-century brought about an increase in global connections through specifc historical events that laid the foundation for what is referred to as the modern international monetary system. The migration of people making up a different kind of workforce, the development and de- ployment of products and technology at a faster pace than ever before, and the implementation of normative ideas about society and the economy all worked together to create an intricate web that spanned the whole world over. These connections mirrored the historical phenomenon known as globalization. As countries became increasingly interconnected, the need to adapt to trends of com- merce and trade in the international community became increasingly important in order to maintain reputation or attain power. First, mercantilism and colonialism, as complex as they are in the context of history, globalized the world in a way that was never seen before in human history. Adam Smith’s narrative of liberalism arose out of his exposure to a mercantilist system of government that prioritized trade and corporate relationships over the well-being of its own citizens (Smith). Colonialism, also functioning as New Im- perialism with all its negative connotations, reinforced cross country dependencies while also creat- ing integrated global markets. Both of these strengthened cross capital fows and investments since berkeley model united nations 3 they required powerful nations to use their own resources to go out into the world, to buy, to trade, to create outposts, to win wars, and to do whatever they thought would bring them proft in the face of the incredible risks they were taking. The places they went – previously economically, culturally independent – were vulnerable and exposed to new experiences in one overwhelming sweep that took place in the span of several centuries. Though history has placed these countries on the losing side, the reality is that their earlier exposures were part of an inevitable trend towards being a more globalized world. These globalizing encounters are inherently biased towards the region we call the western hemisphere. Nations in East Asia, notably, were going through many of the same developmental phases, though they did so in a more isolated way. Some countries, like Japan, did this more pur- posefully than others. The realities of distance also had a signifcant effect on why more deliberate colonization was inaccessible. Figure 1 berkeley model united nations 4 Industrialization and the Great Divergence Though the increasing globalization showed clear differences between nations in terms of abilities and wealth, industrialization into the mid-1800s brought about manufacturing processes that further widened the gap. The Industrial Revolution was largely an isolated event, requiring infrastruc- tural support and the trade of certain goods that benefted mostly Europe and North America. By creating more effcient processes of production but limiting these methods to certain regions of the world, these regions, in particular, were able to maintain power by always having more manufactured goods to exchange for raw goods. Some scholars say that the Great Divergence – or the widening of the gap between the more developed and the less developed – was largely born out of the Industrial Revolution and the com- mercial revolution even before it. The manufacturing and fnancial infrastructure of countries in the western hemisphere were developed to allow them to overcome the constraints on their growth in the past. With these trends toward industrialization and development that unevenly occurred in certain areas, some countries began to pull away from others in terms of modern advancement. That is to say, some countries were labelled as more developed than others. The relative strengths of more developed nations – those owning technology that increased productivity more, having fnancial systems allowing for better internal investment and systems of credit, and having more stability in general – beneftted from the imbalance in world economic development. The comparative advan- tages of these nations gave them more bargaining power in situations that would proft them more. Resources and industry become power and infuence. In order to bargain with those countries in power that produced the manufactured goods or infrastructure necessary to gain wealth by mak- ing a competitive proft – countries like the United Kingdom, Denmark, France, the United States – the poorer countries at a disadvantage needed to adapt to their standards of commerce.
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