Explain the need of Bretton Woods Institutions in this age of Globalization.

Explain the need of Bretton Woods Institutions in this age of Globalization. 

Ans. We can give the following logic for the existence of Bretton Woods Institutions. 

(a) “Irrational” international investors can fall into speculation from payoff externalities, information asymmetries and informational cascades which may lead to herding behaviour. 

(b) When these institutions lend on some conditions, they solve dual problems: one help in formulating proper policies by providing information of world markets and giving loans when private enterprises will never. 

(c) Crisis can spread from one country to other emerging markets and to advanced economies. 

(d) They also help in reducing adjustment costs for underdeveloped and under performing countries. 

(e) These institutions are warning against externalities from poor economic policies and making a rationale for policy coordination. 

(f) Those policy-makers whose concern is reducing inequality and eradicating poverty are not taken as reformers though they have vested interests in the economy. These institutions have not ensured any security to such reformers. 

(g) Reduction in liquidity costs. 

(h) Reduction in excessive liquidation costs in insolvency crisis where there are runs as well. 

(i) Actions of debtors and creditors need to be co-ordinate.