2. World Bank
- Its impact on us
Submitted to, Under Guidance,
Prof.Dr.Anurag Trivedi Miss Manisha
H.O.D. – Electrical Electrical Department
Submitted By,
Krishna K. Omer
0601EE131021
7th semester
3. Terminology
How WB came into existence
IMF and IBRD
World Bank
India and WB
Nixon shock
Economic collapse
Conclusion
4. Currency war, also known as competitive devaluations, is a
condition where countries seek to gain a trade advantage
over other countries by causing the exchange rate of
their currency.
Fiat money :
-Any money declared by a government to be legal tender.
-Non-convertible.
-Valueless money used as money because of government
decree.
A currency that uses a floating exchange rate is known as
a floating currency.
5. An economic bubble is trade of asset at a price or price
range that strongly deviates from the corresponding
asset's intrinsic value.
Price gouging is a term, when a seller spikes the prices
of goods, services or commodities to a level much
higher than is considered reasonable or fair. Usually this
event occurs after a demand or supply shock
6. After the second world war (1939–45), representatives of 45
countries met in a resort, at Bretton woods, USA to come up
with a system which can boost economy and rebuid
economies shattered by war.
As a result, Bretton Woods system was introduced
formulating two bodies called :
1. International Bank for Reconstruction and Development (IBRD),
2. International Monetary Fund (IMF).
System suggested that all currencies will be linked to the
dollar, and the dollar linked to gold.
[ All countries currency ---- Dollar ---- Gold ]
- Bretton woods system
7. The IMF creates a stable climate for international trade
by harmonising its members, and maintaining exchange
stability. Also, It can provide temporary financial
assistance to countries encountering financial
difficulties.
The IBRD, serves to improve the capacity of countries to
trade by lending them loans.
As time changed, now IBRD is globally known as World
Bank.
8. The World Bank is an international financial institution that provides
loans to developing countries.
The World Bank's official goal is the reduction of poverty, the promotion
of foreign investment and international trade.
The first country to receive a World Bank loan was France. The loan was
of 250 million US$, half the amount requested, and it came with strict
conditions.
Country who gets loan from WB has to return amount + interest, and has
to fulfill a list of conditions.
Jim Yong Kim, present president of WB.
9. India is a developing or third world country with a fantastic poverty, that
makes us fit for asking help from WB.
Now if we get loan from WB, we have to repay, plus interest, plus
conditions.
Bigger the amount and longer the time, bigger the interest
This interest would be paid by India, how ?
-inflation
-taxes
-reduced salaries
-unemployment n what not resulting in poverty
means actually we individually are paying these interest
With increase in poverty we are more prone to take more loans n this
cycle goes on till we cry for help.
10. “Now if we get loan from WB, we have to repay, plus
interest, plus conditions. Bigger the amt n longer
the time, bigger the interest”
while repaying, we have to convert INR to USD.
If 1 USD = 67 INR, so interest gets *67, Ex : 1 million earlier,
67 millions now.
Results in uncontrolled amplified poverty.
11. “USD dollar is accepted as international currency”
Ex :
- Ram, RGPV, BE, tomorrow xam, wants study
material, has 11 10 Rs. notes (=110 Rs.)
- shop, book available, book cost 100 Rs.,
13. - outside shop, man,
offers 1 100 Rs. In
xchange of 10 10 Rs.
Notes(=100 Rs.) + 10 Rs.
Commission
- since its urgent, deal is
made, effectively he pays
110 Rs. For 100 Rs,
14. - Now compare :
“ Ram = India,
Shopkeeper = WB (accepts USD only),
commission = exchange rates (USD vs INR)”
15. Because world use it : (why ?)
- lot of countries (govts. & banks) hold
reserves of the USD because it is perceived as the strongest and most
reliable currency.
So if India exports to Nigeria, instead of taking payment in Nigerian
currency, we'd prefer to take payment in USD, because India may be
unable to use Nigerian currency to import from other countries. But
everyone would accept USD, so India will say pay us in USD.
All countries trade in this way, so it makes more sense to mention all
prices in USD and compare one's national currency with the USD.
The Euro is the second largest reserve currency and so they've started
comparing the INR with Euro too.
16.
17. NIXON shock
Countries settled their international accounts in dollars that could be
converted to gold at a fixed exchange rate of $35 per ounce, which
was redeemable by the U.S. government. Thus, the United States was
committed to backing every dollar overseas with gold. Other
currencies were fixed to the dollar, and the dollar was pegged to
gold.
The Nixon shock was a series of economic measures undertaken
by United States President Richard Nixon in 1971, the most
significant of which was the unilateral cancellation of the direct
international convertibility of the United States dollar to gold.
[ All countries currency ---- Dollar ---- Gold ] - (1944-1971)
- Bretton woods system
[ All countries currency ---- Dollar Gold ] -(1971-present)
- Nixon shock (FIAT money system)
18. Today USD is well spread in market means it became popular,
hence gets internationalise.
Now, it has world class quality product, so it exports and we
purchase, in return it accepts USD, and we pay so USD goes
on increasing.
Ex : In INDIA “made in china” is also popular, means we
import China’s product and pay them as per they ask and
make ourself weaker.
But its obvious, made in china is cheaper, so why not we go
with it.
USD vs. INR is actually the status of two countries.
( Ex : 1 punch = 67 punches )
19. There is no precise definition of an economic collapse. The term has
been used to describe a broad range of bad economic conditions,
ranging from a severe, prolonged depression with high bankruptcy
rates, high unemployment, hyperinflation, etc.
The Great Recession was a period of general economic decline
observed in world markets during the late 2000s and early 2010s.
The scale and timing of the recession varied from country to
country.
20. Kaushik Basu, the chief economist of the World Bank and former chief economic
adviser of the Indian government, says corruption helped India avoid banking
crisis that has damaged most other large economies in the last few years.
He says wide use of "black money" - illegal cash, hidden from the tax authorities
– results in answer against crisis in the banking sector.
Ex : Let's say you like the look of a house that is for sale. You r purchasing it now -
for argument's sake , cost 100 rupees.
-The chances are the seller will tell you, he will only take, 50 rupees as a
formal payment and demand the rest in cash.
-That cash payment is what Indians refer to as "black money".
-It means the seller can avoid tax bill. Buyers benefit too because the lower the
declared value of the property, lower the property tax they have to pay.
That's why when the crash came, the balance sheets of the big banks collapsed
along with property prices.
So when prices fell in India - and they did fall in 2008 and 2009 (Great
Recession) most bank loans were still comfortably within the value of the
property.
That's why India managed to avoid the damage to economy.
21. Corruption : an unpleasant disease, it may have some positive side effects -
encouraging your hair to grow, but you would still prefer not to have the
illness.
Bribe, instead of both bribe-givers and bribe-takers being held criminally
responsible for their actions, only the bribe-taker should face sanctions.
Use “Made in India” and produce in India so that no exchange rates may apply.
Taking loan from World Bank is a negative gesture, reflects poverty, instead
spread education, optimise your own system.
Policies for enterpreneurs should be optimised with least paper work.
Produce quality products.
Co-relate yourself with the economics, either you are anyside of the table but
you impact economy,
claim it, let it not happen that our economy is in AUTO-PILOT mode .