Muhittin Mustafa Böcek Anatolian High School Model United Nation Conference 2019

TABLE OF CONTENTS

I. Letter from the Secretary-General ......3

II. Letter from the Associate Under-Secretary-General 4

III. Letter from the Under-Secretary-General 5

IV. Introduction to Committee .............5-7

A. Establishment and Purpose of G205

B. Focal Points Regarding the Policy of G20 6

C. Member States and Leadership of G20 6-7

D. Critics Done for G20

V. Introduction to the Agenda Item....7-19

A. The Gold Exchange Standard in the Beginning 7-8

B. Keynes and the Barbarous Relic8-11

C. The Triffin Dilemma...............11-14

D. Bretton Woods System (1944-1972)15-18

E. Probability for an Emergent International Reserve Currency and Bolstering .............................................18

F. G-20’s Scrutiny on International Monetary Systems 18-19

G. Further Reading ..........................22

VII. Under-Secretary-General’s Notes and Further Requests 23

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I. Letter from Secretary-General

My treasured participants,

I am rife with elation to welcome you all to the second annual session of Model United

Nations of Muhittin Mustafa Böcek Anatolian High School as the Secretary General

responsible for 2019. It has become my greatest pride to see your exceeding shore to our

conference. As I fully aware of the Model United Nations conferences’ trajectory to being

dysfunctional, I made my mind up to ensure you a frame breaking yet a factual experience. I

wholeheartedly assure you a beneficial conference, which displays my main aim openly.

My fellow Deputy Secretary-General Selin Duyar, my Under Secretaries-General and I have

worked relentlessly to designate six innovative, unique and profitable committees that we

think will affect you to take the issues in hand by different over- views and widen your

perspective on both domestic and global issues.

I fully believe, the value of your enthusiasm and effort will comprise and build a stronger

fundamental base for me to continue to preserve the importance and genuineness of further

organizations.

I am looking forward to getting the chance to meet you in MMBALMUN’19,

Yours sincerely,

Yağmur İdil Karadeniz

Secretary-General of Muhittin Mustafa Böcek Anatolian High School Model United Nations

Conference, 2019

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II. Letter from Associate Under-Secretary-General

Esteemed Participants of Group of 20,

First of all greetings and congratulations on being approved as a delegate in such a

committee, G20.

While being fraught with the pleasure of being an Associate Under-Secretary-General in

a conference which I was a delegate in its previous session, serving you as an Associate

Under-Secretary-General responsible for G20 will be one great of an experience for me I

shall ultimately say. My fellow Under-Secretary-General Dağhan Özdemir and I have been

working on this committee for approximately 4 months and since we want you to have a

high-class as well as fun experience throughout the precious conference of MMBALMUN

2019 this study guide was prepared for you to of course better understand our specific agenda

item but also to easily get in contact with us whenever you need before the conference.

Lastly, I assure that your academic experience during this conference will be extremely

qualified since Dağhan is like grandmaster when it comes to economics and our chairboard

will be also helping you in any means necessary I must say.

If you have any questions or misconceptions regarding the agenda item never hesitate to

contact me via umutuysal128@gmail.com.

Stay classy,

Umut Uğur Uysal

Associate Under-Secretary-General responsible for Group of 20

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III. Letter from Under-Secretary-General

Distinguished Representatives,

I would like to gladly welcome you all to the second annual session of Muhittin Mustafa

Böcek Anatolian High School Model United Nations Conference 2019 as the designated

Under Secretary-General responsible for Group of 20. My fellow Associate Under-Secretary-

General Mr. Uysal and I have been working relentlessly for you to experience a classified

academic conference.

I highly suggest the dearest participants of the Forum to fully examine the study guide

and do further research upon the agenda. Since G20 is an advanced committee of the

conference, we are expecting highly qualified and productive four days meeting.

If you have any questions do not hesitate to contact us.

Kindest regard,

Dağhan Özdemir

Under-Secretary-General responsible for Group of 20

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IV. Introduction to Committee

A. Establishment and Purpose of G20

Group of Twenty (G20) is an international group formed by the first 20 industrialized

and economically emerging countries around the globe which was established back in

September 26th 1999. It has a mandate to promote global economic growth, international

trade, and regulation of financial markets. The forum itself holds two-thirds of all world’s

population along with 85% of its overall GDP and due to the reason that G20 is not a

legislative body but a forum, its decisions have no legal impact in any means necessary,

however its decisions ultimately affect countries’ policies along with global cooperation.

B. Focal Points Regarding the Policy of G20

Most of the subjects covered throughout the meetings of the forum vary from global financial

issues, sustainability to sovereign debt problems, international trade, regulation of financial

markets and global economic growth since the beginning. Agenda priorities in the Buenos

Aires summit (2018) illustrated that G20’s topics reflect changing concerns. Serving as the

host responsible for the summit, Argentina proposed motions regarding on the future of

work, infrastructure for development, and a sustainable food future. U.S.-China Trade War

and Cryptocurrencies also played a huge role during these talks which seem likely to be

discussed in the Osaka summit (2019).

C. Member States and Leadership of G20

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Along with the members of the G-7, the forum houses 12 other countries which currently

form the G20.

[Current G20 Members]

G20 invites guest countries to attend its events. Spain is invited permanently as is the current

chair of the Association of Southeast Asian Nations (ASEAN); two African countries (the

chair of the African Union and a representative of the New Partnership for Africa's

Development) and at least one country invited by the presidency, usually from its own region.

The chairmanship of the G20 leaders' summit rotates among four groups of countries. As

each group's turn comes up, its members negotiate among themselves to decide who chairs

the meeting.

International organizations such as the IMF, the World Bank, the United Nations, the

Financial Stability Board and the World Trade Organization also attend the summits.

D. Critics Done for G20

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Since its origin, a part of the G20's tasks have drawn contention. Concerns incorporate

straightforwardness and responsibility, with commentators pointing out the nonattendance of

a formal sanction for the gathering and the way that probably the most significant G20

gatherings are held away from public scrutiny.

A portion of the gathering's strategy solutions have likewise been disliked, particularly with

liberal gatherings. Dissents at the gathering's summits have, among different reactions,

blamed the G20 for empowering exchange understandings that reinforce huge partnerships,

of being reprobate in battling climate change, and in neglecting to address social disparity

and worldwide dangers to democracy.

The G20's membership policies have come under fire, too. Critics say the group is overly

restrictive, and its practice of adding guests, such as those from African countries, is little

more than a token effort to make the G20 reflective of the world's economic diversity.

Former US President Barack Obama noted the challenge to determining who can join such a

powerful group: "Everybody wants the smallest possible group that includes them. So, if

they're the 21st largest nation in the world, they want the G21, and think it's highly unfair if

they have been cut out."

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[G20 Leaders at Buenos Aires Summit 2018]

V. Introduction to the Agenda Item

A. The Gold Exchange Standard in the Beginning

The 20th-century gold exchange standard was based on an international system of free

exchange-of goods, services, and capital. In such conditions, it was presumed that

competition among countries would support the law of one price for all goods traded in

global markets. When this was not the case, international arbitrage would take place. If the

gold price of goods were below that prevailing in other countries, there would be an incentive

to exchange gold for goods and to export those goods to foreign markets where the gold price

was higher. Private individuals seeking to maximize profits would engage in international

exchange that would result in an equivalent gold price for similar goods in all countries. A

corollary of this system of arbitrage was the elimination of trade imbalances, as surplus

countries would be accumulating gold. This was presumed to bring about a rise in the gold

price of domestic goods, reducing their competitiveness in the global marketplace.

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Gold exports would replace goods exports, and the surplus would be reduced until gold

prices were brought back to international levels and the external accounts returned to balance.

Another corollary was that the purchasing power of private savings would be stable on

average over time, whether invested in domestic or in foreign currency. The stability of the

purchasing power of savings was a result of the operation of the international adjustment

mechanism rather than some quality or value inherent in gold itself.

[Gold exchange rates during the Great Depression era]

B. Keynes and the Barbarous Relic

Keynes criticized the international gold-standard system because the mechanism for

addressing imbalances was normally not through arbitrage to eliminate price differentials but

rather through adjustments in the level of activity-particularly in the level of employment.

Further, he noted that this quantity adjustment process tended to be asymmetric. Since deficit

countries that experienced a gold outflow could run out of gold before the price arbitrage

process was operative, they would have to take measures to stem the outflow of gold, usually

through an increase in interest rates, a cutback in domestic financing for investment, and a

reduction of incomes that would lead to a fall in the demand for imports. This would improve

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the external balance, but at the cost of a lower level of output and employment. Surplus

countries, on the other hand, could simply let their surpluses accumulate without allowing the

expansion in the gold supply to induce changes in their domestic policies. If the only

adjustment in the international system were a reduction in activity, this would lead to a

tendency for global demand to be consistently below that necessary to allow full

employment. This would constrain the ability of countries that chose to implement full

employment policies, if other countries elected not to adopt such policies as well.

Keynes was especially concerned that the active policies he had proposed to support the level

of employment in response to the Great Depression would be stymied by the actions of

countries that believed the appropriate response to financial crisis was to increase saving by

cutting government expenditures. There was a second asymmetry involved, since the costs of

quantity adjustment were borne by labor (i.e., the loss of employment reduced wage

incomes), while the purchasing power of private savings was preserved-or, in the case of a

reduction in activity leading to deflation, augmented. There was also an asymmetric

relationship between debtors and creditors (in favor of the latter) that made recovery more

difficult.

To resolve the problem of asymmetric adjustment, Keynes recommended the creation of an

International Clearing Union, with temporary payment imbalances settled by means of a

notional unit of account that could not be traded in private markets. However, it was not the

proposal to replace gold with a notional unit of account that was critical. It was that member

governments would agree to implement coordinated symmetric adjustment policies, either by

rule or by mutual consultation, with policy actions taken by both deficit and surplus countries

- the reduced activity in the former to be balanced by the expansion of activity in the latter in

order to keep global demand unchanged. The costs of adjustment would then be borne

equally by all countries and by capital and labor, and would allow countries to pursue

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national policies of full employment if they chose. Keynes' proposed system did not envisage

private currency trading or the presence of large international capital flows, intermediated by

private financial institutions, to finance external imbalances. The simple reason was that, not

only could such flows be destabilizing (as had been the case in the interwar period), but they

could also allow imbalances to increase without limit as long as countries could borrow in

private markets.

This would put the size of imbalances and their adjustment in the hands of private bankers

rather than in the hands of government policymakers.

Under Keynes's proposal for reform of the gold-exchange standard, the maintenance of

purchasing power depended on an adjustment mechanism that constrained the size of

imbalances and thus preserved the exchange rates between national currencies and the

notional unit of account. But there is no automatic mechanism that ensures this result, nor any

mechanism that ensures full employment. It is the result of coordinated policy action taken

mutually by members of the clearing union.

[Keynesian and Neo-classical economics theories comparison]

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C. The Triffin Dilemma

In any event, Keynes's proposal was not adopted. Instead, the dollar was inserted into the

system in place of gold by pegging the dollar price of gold and the parity of all other

currencies to the dollar. This dollar-exchange standard, adopted at Bretton Woods, possessed

an additional difficulty identified by Triffin. He observed that, irrespective of whether the

dollar (or any national currency) playing the role of international reserve currency were fixed

in terms of gold, global confidence in its value would eventually erode. This was because the

asymmetric adjustment that Keynes had noted with respect to the gold standard would still

exist for all countries-except for the country whose national currency served as the

international means of payment and store of value. Thus, surplus countries, without the

necessity of introducing adjustment policy, would increase their holdings of the national

currency (the dollar), and all countries seeking increased international liquidity would do so

as well. This would lead to ever-increasing deficits for the country issuing the reserve

currency-in the Bretton Woods system, the United States. If the currency were linked to gold,

its outstanding international currency issue would soon exceed the gold supply on which it

was based, leading to an inability to meet the commitment to fix the exchange value of the

currency in gold. This is the dilemma in the dollar exchange system that was noted by Triffin

in the 1950s and which occurred in the 1960s.

In this system, there may be a tendency to support global aggregate demand if the country

issuing the reserve currency is willing to accept the increasing current account deficits

required to satisfy the growing demand for global liquidity. But the Triffin dilemma will

always be present, and at some stage, there will be a crisis caused by a collapse in

international confidence in the currency's value and calls for a substitute currency.

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The opposite would be the case if the country were to pursue a policy of external balance, or

of building external savings or following a strategy of export-led growth. This was more or

less the case of the United States in the period of dollar shortages after the war, and of

Germany in the European Monetary System before the creation of the euro. In these cases,

the problem was the lack of global liquidity caused by excess savings held by the country

issuing the reserve currency-the problem that special drawing rights, or SDRs, were

originally meant to resolve. However, by the time they were created, the problem was an

excess of dollar liquidity, a problem that SDRs were unable to solve.

A version of the Triffin dilemma is also present in a system in which the national currency

serving as the international means of payment is not fixed in terms of gold or any other

physical asset. In this case, its value in terms of other currencies is dependent on the

willingness of surplus countries to hold the currency. In simple terms, once the link to gold is

broken, the system becomes a Ponzi scheme in which the external value of the international

currency is determined by the demand for reserves and liquidity by other countries. Thus, the

ultimate value of the international currency lies in its purchasing power over the goods and

services of the issuing country. If foreign holders are not willing to purchase the country's

exports, then the value of the currency will decline until the price of its exports becomes

sufficiently attractive. In contrast to the gold standard, the price adjustment mechanism here

functions through changes in the international value of the currency-the effect of the

exchange rate adjustment on the relative prices of goods and on the capital value of

international reserve holdings. The latter represents the loss in purchasing power that has

become the center of attention in recent discussions about reforming the international

financial system.

Finally, in all of these different forms of the international financial system, the stability of the

purchasing power of the reserve currency is inherently linked to the operation of an

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adjustment mechanism that eliminates international imbalances, either automatically or

through a coordinated policy mechanism. The question of stable purchasing power would

thus appear to have little to do with what asset actually serves as the international reserve

currency.

D. Bretton Woods System (1944-1971)

The Bretton Woods agreement was created in a conference back in 1944 between all of

the World War II Allied nations. Under the agreement, countries promised that their central

banks would maintain fixed exchange rates between their currencies and the dollar. If a

country's currency value became too weak relative to the dollar, the bank would buy up its

currency in foreign exchange markets. That would lower the currency's supply and raise its

price. If its currency became too high, the bank would print more. That would increase the

supply and lower its price.

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Members of the Bretton Woods system agreed to avoid trade wars. For example, they

wouldn't lower their currencies strictly to increase trade. But they could regulate their

currencies under certain conditions. For example, they could take action if foreign direct

investment began to destabilize their economies. They could also adjust their currency values

to rebuild after a war. Until World War I, most countries were on the gold standard. But they

went off so they could print the currency needed to pay for their war costs. It

caused hyperinflation, as the supply of money overwhelmed the demand. The value of

money fell so dramatically that, in some cases, people needed wheelbarrows full of cash just

to buy a loaf of bread. After the war, countries returned to the safety of the gold standard.

All went well until the Great Depression. After the 1929 stock market crash, investors

switched to forex trading and commodities. It drove up the price of gold, resulting in people

redeeming their dollars for gold. The Federal Reserve made things worse by defending the

nation's gold reserve by raising interest rates. It's no wonder that countries were ready to

abandon a pure gold standard.

The Bretton Woods system gave nations more flexibility than a strict adherence to the gold

standard. It also provided less volatility than a currency system with no standard at all. A

member country still retained the ability to alter its currency's value if needed to correct a

"fundamental disequilibrium" in its current account balance. 

However, in 1971 the United States was suffering from massive stagflation. That's a deadly

combination of inflation and recession. It was partly a result of the dollar's role as a global

currency. In response, President Nixon started to deflate the dollar's value in gold. Nixon

revalued the dollar to 1/38 of an ounce of gold, then 1/42 of an ounce.

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But the plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people

redeemed their quickly devaluing dollars for gold. In 1973, Nixon unhooked the value of the

dollar from gold altogether. Without price controls, gold quickly shot up to $120 per ounce in

the free market. The Bretton Woods system was over.

[Exchange rates during Bretton Woods System]

E. Probability for an Emergent International Reserve Currency and Bolstering

It is close to a decade since the start of the global financial crisis that raised many critical

questions. Between these are how the international monetary system monitors, regulates, and

manages the volatility of global liquidity and the consequent risks for international financial

stability. The International Monetary Fund (IMF) is also now discussing a roadmap for

bolstering the international monetary system and better managing liquidity shocks.

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Central banks do play a key role in monitoring liquidity developments and, as much as

possible, in ensuring liquidity is provided sufficiently to international markets. They have

recently increased significantly the number of swap agreements, but they have stopped well

short of developing an institutionalized global swap network that some have favoured to meet

the needs of the system in all circumstances. Moving on. The global discussion of the

external spillovers from their national monetary policies remains inadequate.

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Addressing these issues could be best done through a global monetary institution, and

instruments that would allow it to regulate global liquidity in addition to all of its other

current functions. To actualise such an action the IMF firstly needs to be assigned monitoring

responsibility over movements in capital account balances, like it has over current account

balances however this needs an amendment to the IMF’s Articles of Agreement which is

highly a substantial thing since it is not under G20 authority and jurisdictions.

Second, a high-level group should be established and authorized with overseeing global

liquidity. It would be highly in order if such a group would be formed of central bank

governors that would report periodically to the G20.

Making the special drawing rights (SDR) the principal reserve asset in the international

monetary system was originally envisaged in the IMF’s Articles of Agreement. To restore the

Potential of the SDR, a number of specific measures would need to be taken that would give

IMF the power to use it much more flexibly and as readily-requested by the global liquidity

situation. Such measures include steps to give the SDR much more visibility in the operations

of the IMF and other institutions in the official sector, thereby building its potential to

become competitive with other internationally used currencies.

Such a transformed IMF could be charged in cooperation with national or international

central banks with persistently monitoring global liquidity flows, and preparing the regulatory

decisions that would need to be taken to manage it. This would not be far removed from the

mechanism outlined by the Keynes Hypothesis.

Thus, it would need to be carefully sequenced, authorizing the IMF a stronger governance

framework, the mandate for effective surveillance, stabilization of global liquidity and

exchange rates mechanisms for reducing the risk of disorderly spillovers, and for dealing with

debt restructuring.

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F. G-20’s Scrutiny on International Monetary Systems

When the first G-20 Summit was launched in 2008 in order to provide an emergency

response to the global financial crisis, the premise was that dramatic reforms were needed in

a short period of time. Those reforms could never happen in the slow-moving machineries of

the institutions with full representation of all countries, such as the UN, hence, the need for

the G-20.

The G-20 has negligible progress to show, calling such premises into question. The world

veers dangerously close to a new global recession that, if it happens, will catch developing

countries in a worse position than three years ago. The President of the World Bank informed

on September 2011 that developing countries’ fiscal positions are, in the average, two

percentage points of GDP down from where they were pre-crisis. In the face of what is

arguably a more pressing emergency than three years ago, the forum cannot even agree to

throw its full weight behind the coordinated stimulus measures of the kind and scale to which

they had previously agreed. The idea that grand agreements can be reached by the most

powerful countries, if only small countries stop acting as spoilers or brakes in the multilateral

machinery with their delaying tactics or parochial views, has evidently no merit to it.

The area where the G-20’s failure to make progress will be most costly to the world economy

is the reform of the international monetary system. Because of political and ideological

constraints, the US and Europe seem to have run out of options to introduce stimulus

measures, either fiscal or monetary. Agreements on a sensible set of steps to transit towards

an international monetary system with a wider range of options for stimulus, support for trade

stability and an adequate mechanism for adjusting global imbalances without recessionary

consequences.

The G-20’s agenda for the monetary system has, indeed, chosen the wrong priorities. In order

to achieve better macroeconomic coordination, it has chosen to prioritize discussions on

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surveillance and lending tools within the IMF, rather than mechanisms to guarantee the

credibility of such agreements.

In order to achieve more stability, it is promoting a “framework for managing capital flows.”

This process seems headed towards curbs on the right of countries (under Article VI of IMF

Articles of Agreement), to implement capital account restrictions, a recipe for greater, not

less, volatility.

The existing diverse and more flexible regional monetary cooperation agreements that have

evolved in line with the needs and history of countries in different regions, are being asked to

fall together under an IMF-coordinated umbrella of one-size-fits-all principles. More

uniformity in the behavior of economic units leads to greater, not less, systemic risk, one

would have hoped is a lesson learned from the crisis.

Finally, after a promising start, the discussion on how to make Special Drawing Rights the

cornerstone of the monetary system has been brushed aside. Instead, one sees a narrow

agenda that seeks to broaden the currency basket not guided by any particular rationale to

make the basket more stable and flexible.

F. Further Reading

https://civil-20.org/c20/wp-content/uploads/2018/07/C20-policy-paper_infrastructure-

financing_.pdf

http://triplecrisis.com/international-monetary-system-reform-g20-chooses-the-wrong-

priorities/

https://dergipark.org.tr/download/article-file/321344

https://www.thebalance.com/bretton-woods-system-and-1944-agreement-3306133

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http://www.economicsdiscussion.net/international-economics/the-international-monetary-

system-reforms/6703

https://www.cfr.org/backgrounder/g20s-twenty-agendas

http://www.imsreform.org

VII. Under-Secretary-General’s Notes and Further Requests

I highly advise the members of G20 to comprehend this Study Guide in an efficient

way because since that economy is not a thing to mess with, and the wrong decisions that

may possibly be taken in this committee constitute utmost danger to approximately the whole

world’s economical stance (85% of total world population’s GDP is not a joke) therefore I

want to see every member to attend the conference in a fully prepared manner.

Designated as the Associate Under-Secretary-General responsible for NAC,

Umut Uğur Uysal

Associate Under-Secretary-General

,

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BIBLIOGRAPHY

https://www.globalpolicy.org/social-and-economic-policy/the-world-economic-crisis/general-

analysis-2/47980-the-reform-of-the-international-monetary-system.html

https://civil-20.org/c20/wp-content/uploads/2018/07/C20-policy-paper_infrastructure-

financing_.pdf

http://triplecrisis.com/international-monetary-system-reform-g20-chooses-the-wrong-

priorities/

https://dergipark.org.tr/download/article-file/321344

https://www.thebalance.com/bretton-woods-system-and-1944-agreement-3306133

http://www.economicsdiscussion.net/international-economics/the-international-monetary-

system-reforms/6703

https://www.cfr.org/backgrounder/g20s-twenty-agendas

http://www.imsreform.org

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