What Is The Bretton Woods Agreement How Was It Different From The Gold Standard

Posted by on Apr 15, 2021 in Uncategorized | No Comments

As has already been said, 44 Allied Nations met in 1944 in Bretton Woods, NH, for the United Nations Monetary and Financial Conference. At that time, the world economy was very wobbly and allied nations wanted to meet to discuss and find a solution to the dominant problems that tormented currency exchange. The summit also looked for strategies and regulations that would maximize the potential benefits and benefits that could be derived from the global trading system. The conference resulted in the Bretton Woods agreement and the Bretton Woods system. The Bretton Woods rules, set out in the articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a fixed exchange rate system. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to make free trade. The IMF has attempted to provide for exchange rate adjustments from time to time (a change in the face value of a member) by an international agreement. Member States have been allowed to adjust their exchange rates by 1%. This trend has been to restore the balance of trade by increasing exports and reducing imports. This would only be permissible if there was a fundamental imbalance. A depreciation of a country`s money was described as a devaluation, while an increase in the value of the country`s money was described as an appreciation. The architects of Bretton Woods had devised a system in which exchange rate stability was a priority. But in an era of more activist economic policy, governments have not seriously considered permanent interest rates, modelled on the classic gold standard of the 19th century.

Gold production has not even been sufficient to meet the demands of growth in international trade and investment. In addition, much of the world-famous gold reserves were in the Soviet Union, which was to emerge as a Cold War rival with the United States and Western Europe. One of the reasons Bretton Woods worked was that the United States was clearly the most powerful country around the table and was thus able to impose its will on others, including an often dismayed Britain.