About Bretton Woods Agreement

The Bretton Woods system was put in place as a more stable replacement for the gold standard under which all currencies were converted to gold. Under the new agreement, the dollar was the standard for international transactions, which were valued at one ounce of gold. The fact that the United States held a large portion of the world`s gold reserves allowed the dollar to play its new role as a standard currency on which the stock markets were based. THE financial crises of US President Richard Nixon led to the end of the Bretton Woods system. During these years, the foreign dollar exceeded the value of U.S. gold reserves at Fort Knox and elsewhere. This undermined the premise of the agreement, namely that the United States could still support its dollars with its gold equivalent. Post-war global capitalism suffered from a huge shortage of dollars. The U.S. had huge trade surpluses and U.S. reserves were huge and growing. It was necessary to reverse this river.

Although all nations wanted to buy U.S. exports, the dollars had to leave the United States and be available for international use so that they could do so. In other words, the United States should reverse global prosperity imbalances by chartering a trade deficit financed by the U.S. outfed of reserves to other nations (a deficit in the U.S. fiscal balance). The United States could have a financial deficit, either by building plants, or by building plants, or by foreign nations. Remember that speculative investments were discouraged by the Bretton Woods agreement. Imports from other nations were not attractive in the 1950s because American technology was up to date at that time. This is how multinationals and global aid from the United States originated.

[29] The Bretton Woods countries have decided not to give the IMF the power of a global central bank. Instead, they agreed to contribute to a solid pool of national currencies and gold, which would be held by the IMF. Each member country of the Bretton Woods system then had the right to borrow as part of its dues, which it needed. The IMF was also responsible for implementing the Bretton Woods agreement. As chief international economist at the U.S. Treasury, Harry Dexter White designed the U.S. Cash Access Project in 1942/44, which rivaled Keynes` plan for the British Treasury. Overall, White`s system tended to favour incentives to create price stability in the world`s economies, while Keynes wanted a system that promoted economic growth. The „collective agreement was a huge international undertaking,“ which took two years before the conference to prepare for it. It consisted of numerous bilateral and multilateral meetings to find a common basis for determining the policies that would be behind the Bretton Woods system. The security of money by the gold standard began to become a serious problem in the late 1960s.

In 1971, the problem was so serious that U.S. President Richard Nixon announced that the possibility of converting the dollar to gold was „temporarily“ suspended. The stage was inevitably the last straw for the system and the agreement that sketched it.




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