EVOLUTION OF GLOBAL FINANCE

for another is simply the best rate that someone will give you, so
exchange rates are highly volatile. During the oil crises of 1973 and
1979, when OPEC dramatically increased the price of oil, the floating
system helped to minimize the chaos as the strain was taken by an
adjustment in exchange rates (the OPEC countries' currencies suddenly
became much more valuable), rather than by stopping real economic
activity.

Today, there are diverse ways of controlling exchange rates some

countries allow their currencies to float freely with the market, while
others ``peg'' their currency to fluctuate within a fixed range against
the dollar. Overall, the current system is best described as ``managed
floating,'' with nations' central banks intervening in currency markets
occasionally to try to influence their exchange rates.

TIMELINE: KEY EVENTS IN THE DEVELOPMENT OF
GLOBAL TRADE AND FINANCE

1848: The protectionist Corn Laws repealed in Britain, a landmark
victory for free trade.

1870s: Multinational companies, such as Nestlґ

e and Michelin, deve-

lop to exploit new technical processes.

1914: The First World War forces countries to abandon the gold
standard. Exchange rates fluctuate wildly, to the detriment of world
trade.

1930s: The Great Depression mass unemployment and a dramatic
slowdown in international trade casts doubt on the idea that free
markets are fully self-adjusting. J.M. Keynes argues that governments
can stimulate economies by spending.

1944: The Allied powers meet at Bretton Woods to devise a system
for stabilizing exchange rates and promoting growth and trade. All
currencies are tied to the US dollar, and the IMF and World Bank are
created.

1947: The GATT trade agreement, intended to reduce international
trade barriers, is signed by 23 nations.

1950s: American MNCs grow rapidly in developed foreign markets,
investing heavily in R&D and using sophisticated marketing methods.

1971: The US abandons the Bretton Woods system, and currencies
are allowed to float against one another.