The International Debt Crisis Essay Example | Topics and Well Written Essays - 1250 words

The International Debt Crisis - Essay Example After World War 2, the Bretton Woods system was established and followed by many nations for years till is a collapse in 1971. The Bretton Woods system was related to fixed exchange rate; linked to the reserve of gold held by the country. The system operated as the value of the dollar was kept almost constant and any fluctuation in the exchange rates between the dollar and other currencies was accordingly countered by the central banks of the related countries.   If the dollar experienced a decrease in value, the central bank of the country would act so as to counter the effects of this fall in value by selling more of its own currency to decrease its value and maintain the value of the dollar to its previous level. This system functioned because of the willingness and ability of other nations to help maintain the value of the dollar. However, in 1971 when the United States experienced a fall in the value of the dollar the countries did not act to maintain the value of the dollar. ...  Finally, the Bretton Woods system was abolished in 1971 and the floating exchange rate system was introduced where the value of the dollar was allowed to fluctuate in the money market.   THE OIL PRICE HIKE AND ITS EFFECTS  The increase in the prices oil in the 1970s was massive enough to create a ruffle in the economies of many countries throughout the world. The oil-exporting nations experienced a huge capital inflow due to the increase in prices whereas the oil-importing countries (which included many developing nations) experienced noticeable capital outflow and oil inflation in their respective economies.