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The Bretton Woods System

Submitted byAnkit BadnikarMBA IT

Roll no-04

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History Named for the Bretton Woods Monetary

Conference which took place in NewHampshire, during July 1-22, 1944.

44 allied nations and one neutral US Treasury Harry Dexter White and

Britains Treasury John Maynard Keynescollaborated for 2 1/2 years to formulate a

plan for post-war recovery

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Events leading up to the

conference Restrictive market practices which caused

the devaluation, deflation and depressionthat defined the economy of the 1930s.

World War II The gold standard

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The Gold Standard

A certain amount of currency is easilyconvertible into its equivalent of gold

Towards the end of the war, many nations,such as Britain, did not want to return tothe pre-war gold standard, and sought for

a more stable standard

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Goals of the Conference

Intended to govern currency regulationsand establish legal obligations (through theIMF)

Set a standard for exchange rates Establish international monetary

cooperation Money pool from which member nations

can borrow funds

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Outcome:formally established December 27, 1945

1) Adjustable peg currency 2) Quotas embedded in the IMF which require member

nations to pay a certain amount of money (to the Fund) 3) Members were forbidden to engage in discriminatory

currency practices to prevent them from manipulatingtheir price levels and exchange rates

4) The creation of the IMF and World Bank (International Bank for Reconstruction and Development)

5) The dollar standard

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Problems

Post-war monetary relations were unstable The member nations underestimated the

strength of their funds... after two years oflending, the IMF was drained of its money

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Results: Dollar Hegemony

This ultimately led to the U.S., the most powerful nation inthe world, taking responsibility as global monetarymanager

1) The US maintained an open market for imports and

trade 2) Granted long-term loans and grants to other nationsvia the Marshall Plan and other aid programs

3) Established a liberal lending policy for short-term

funds in times of crisis Soon, the gold exchange standard becomes

the dollar exchange standard

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The Implied Bargain

The U.S.becomes a globalhegemon dueto strength ofthe dollar

US's allies acquiesce to thishegemonic system becauseit benefits their owneconomies

U.S. allowsallies use of thesystem for their

own benefit

U.S. is able toactunilaterally to

secure its owninterests

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The End of the Bretton WoodsSystem

Due to the costs of the Vietnam War andnations trading $ for gold, On August 15,1971, President Nixon announced three

changes in the U.S.s economic policy. (1) He imposed a 90-day wage-pricefreeze

(2) He imposed a temporary tariff onimports. (3) The end of the Bretton Woods System

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Results. The link between gold and the dollar is severed Economies allow their currencies to float freely

against the dollar Flexible exchange rates allow for countries to

adjust to increased prices, as was seen in the oilprice shocks of the 1970s The formation of the European Monetary System,

to create fixed exchange rates betweenparticipating European nations Members of European Economic Community

(now the EU) linked their currencies together

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Bretton Woods II &

Todays World On September 24-25, 2009, President

Obama met with the G20 nations where arealignment of currency exchange rateswas proposed

The World Bank and IMF are still active,

although they have been severely criticizedfor some of their policies

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Sources

http://www.time.com/time/business/article/0,8599,1852254,00.html

http://www.polsci.ucsb.edu/faculty/cohen/inpress/bretton.html

http://www.imf.org http://www.globalpolicy.org/component/co

ntent/article/209/42675.html