Discussion Board 4

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Southern New Hampshire University *

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INT 220

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Economics

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Jan 9, 2024

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When should a government, economy, or country be bailed out, if ever? Justify your answer with specific examples and how the bailout or lack of bailout would impact the global economy and the future of globalization. A government, economy or country should be bailed out only if the effects of their economic fallout would be devastating for the entire global economy. For example, in 2008 there was a historical recession and financial crisis that pushed the American auto industry to the brink of collapse. Due to this crisis, many automobile companies such as GM and Chrysler were nearly forced to liquidate entirely which would have resulted in nearly 1 million jobs reductions (The U.S. National Archives and Records Administration, 2011). Because of the interdependence between the auto companies and suppliers, the United States’ overall economy was in jeopardy, and it also could have been causation for a global recession. In response, the United States government made the decision to provide support to the two major companies in order to safeguard the automobile economy, which contributed greatly to the GDP and unemployment rates (The U.S. National Archives and Records Administration, 2011). The United States was justified in intervening because without the support, the entire U.S. government could have diverged from the status of an economic recession to an economic depression (The U.S. National Archives and Records Administration, 2011). This would have had diverse effects on the global economy and the future of globalization. At the time, global trade had already nearly collapsed due to a 15% decline and a 3% rise in unemployment rates (Rodini, 2023). If the auto industry had collapsed in America, then the global unemployment rates would have increased even more and global trade would have seen an exponential decline on top of the preexisting 15%.

What lessons should be learned from the Greek debt crisis for countries with debt obligation issues and for organizations such as the IMF? The Greek debt crisis provides various lessons for countries with debt obligation issues and organizations such as the IMF. Regarding the IMF organization, the Greek debt crisis demonstrated the need to modify the size and duration of IMF financing co-financing arrangements between the IMF and other creditors, IMF policy flexibility and accountability, IMF policy towards currency unions, and the seniority of IMF financing (Nelson, 2017). The IMF was highly scrutinized for supporting Greece because of their repeatedly poor economic and fiscal decisions coagulated with IMF’s austerity policies that had harsh social effects. The IMF changed its policy on debt restructuring and austerity during the crisis and declined to participate in a third program for Greece due to concerns about debt sustainability and economic reforms. The IMF revised its lending policies largely based on its experience in Greece (Nelson, 2017). Lastly, it is important to have learned from the Greek debt crisis for countries with debt obligation issues that the IMF needs to hold the member country accountable for their actions and intervention should only be initiated when there are cataclysmic, largescale consequences. The Greek debt crisis should be used as blueprint moving forward on what types of policies should be implemented or not, how to find a balance between accountability and support while safeguarding the security of the IMF and its members (Nelson, 2017).

 The IMF is considering creating a digital currency. Assuming that we are in a world where there is a single digital currency, who would ideally create a global cryptocurrency? Would you trust the IMF to create one? Or would you prefer one created by a global bank such as JPMorgan Chase or one backed by a country? I would trust the IMF to create a digital currency over a global bank or a country. The IMF is in place to support global macroeconomic and financial stability. They provide policy advice and help countries build and maintain strong economies (International Monetary Fund, 2022). This organization would be a good candidate for creating a digital currency because they would be able to centralize the currency and provide some stable authority in the market space. I also believe that they would be a good contender for creating a digital currency because they are a seasoned financial organization that has worked with various countries all over the world. The IMF would also be a better option than a global bank or a country because it would provide safety to the investors and alleviate the chances of counterparty risks and liquidity ( Adrian & Mancini-Griffoli, 2023). A single country backing a digital currency would allow for potential inequitable transactions and policies that are beneficial only for the origin country where the currency is sponsored.  What are the ethical implications of cryptocurrency?  There are numerous ethical implications of cryptocurrency. For example, because of the pseudonymity – the use of a fake name or identity – many of the users are associated with criminal activity that range from the financing of terrorism to

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mafias and wars (Torregrosa & Fontrodona, 2023). There is also a lack of regulation which means that investors are not protected, and the speculative nature of the market has curated addiction problems amongst the youth (Torregrosa & Fontrodona, 2023). Lastly, the technology that enables the crypto market to operate, consumes an excessive amount of energy that has a harmful effect on the environment (Torregrosa & Fontrodona, 2023).

References Adrian, T., & Mancini-Griffoli, T. (2023, February 23). Technology behind crypto can also improve payments, providing a public good . IMF Blog. https://www.imf.org/en/Blogs/Articles/2023/02/23/technolog y-behind-crypto-can-also-improve-payments-providing-a- public-good International Monetary Fund. (2022, July 12). The IMF and the World Bank . IMF. https://www.imf.org/en/About/Factsheets/Sheets/2022/IMF- World-Bank-New Torregrosa, J. P., & Fontrodona, J. (2023, January 13). The ethical concerns of Cryptocurrencies . IESE Insight. https://www.iese.edu/insight/articles/cryptocurrencies- blockchain-crypto-assetsethics/#:~:text=Lack%20of %20trust%2C%20criminal%20associations,have%20yet %20to%20be%20resolved.

IMF  IMF’s job was to oversee a system of fixed exchange rates, which tied the value of a country’s currency to the U.S. dollar, which was pegged to gold.  Main purpose of this was to make sure exchange rates stayed stable to encourage global trade  IMF was also tasked with providing short-term loans to countries struggling to pay their debts.  IMF now keeps tabs on the global economy and puts economic policies in place in member countries. They fight financial crises around the world.  2,700 employees  Funded by members (675B in Quotas)  Biggest Contributors:  USA, China, Japan, Germany  Lending Commitment: 160B  IMF’s biggest borrowers include: 1. Greece 2. Portugal 3. Ukraine 4. Pakistan 5. Others World Bank  The World Bank’s main goal was to give financial assistance to countries (mainly in Europe) that needed to rebuild after WWII  Focuses its efforts on development and reducing poverty  It provides funding and resources in projects in some of the poorest countries in the world  10,000 employees  Funded by Issuing Bonds  Lending commitments: 59B in Fiscal year 2017  World Banks’s biggest borrowers include: 1. Africa 2. East Asia 3. Others

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