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September 12, 2021

Bretton Woods Agreement History

Filed under: Uncategorized — Chris Chaten @ 7:42 PM

A devastated Britain had little choice. Two world wars had destroyed the country`s main industries, which paid to import half of the country`s food and almost all its raw materials except coal. The British had no choice but to ask for help. It was not until the United States signed an agreement on December 6, 1945, to provide $4.4 billion in aid to Britain that the British Parliament ratified the Bretton Woods Agreements (which was done later in December 1945). [24] The Bretton Woods rules, set out in the Treaty articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a system of fixed exchange rates. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to free trade. The agreement does not provide for the creation of international reserves. She thought that a new production of gold would be enough. In the event of structural imbalances, it expected national solutions, such as an adjustment in monetary value or an improvement in a country`s competitive position by other means. However, the IMF has had little capacity to promote such domestic solutions.

The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations that would oversee the new system. There was a strong consensus among powerful nations that the lack of exchange rate coordination in the interwar period had exacerbated political tensions. This facilitated the decisions of the Bretton Woods conference. Moreover, all the Bretton Woods participating Governments agreed that the monetary chaos of the interwar period had brought several valuable lessons. Financial crises during the term of US President Richard Nixon led to the end of the Bretton Woods system. During these years, the amount of dollars held abroad exceeded the value of gold reserves held by the United States, at Fort Knox and elsewhere. This undermined the premise of the deal, which is that the US could still get its dollars back with its gold counter-value. Below is a brief summary of why the world`s economies became part of the Bretton Woods system, how the system worked, why it failed, and the impact of the agreement on the development of the international monetary system. Modern economists can gain insights and insights by revealing the past of their profession.

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