What was the Bretton Woods system
Bretton Woods Agreement
For the last time in monetary history, Bretton Woods introduced a gold parity with the dollar. This meant that the currencies of the participating states tied the value of their currencies to the gold dollar as a measure of value. Because of the gold dollar standard, the US central bank, the Federal Reserve Bank, was obliged to exchange every dollar in circulation for gold at a fixed price. After the dollar had already exceeded the gold reserves of the American central bank in the 1960s, the gold standard finally collapsed in 1971 and the Federal Reserve Bank refused to meet its obligation to redeem dollars for gold. The Bretton Wood system with its fixed exchange rates ended in 1973.
In July 1944, within the framework of the United Nations Monetary and Financial Conference of 44 countries in Bretton Woods (USA), agreement on the reorganization of the international monetary system. The core elements of the agreement were the agreements on the establishment of an International Monetary Fund and an international bank for reconstruction and development (World Bank). The agreement created the conditions for the construction of a currency order based on fixed exchange rates, which came into force after the end of World War II. The basis of this currency order was the US promise to exchange the dollar for gold at any time. With the lifting of this gold redemption obligation by the USA on August 15, 71 and the temporary release of the exchange rates of various countries in the same year, this currency system, which at last included almost all countries in the world outside the Eastern Bloc and China, was temporarily suspended. In March 1973 the system of fixed exchange rates established in Bretton Woods had to be abandoned for good.
Agreement on the establishment of the International Monetary Fund and the World Bank
Reorganization of the international monetary system in July 1944 on the occasion of an international monetary and financial conference that took place in Bretton Woods (USA). The main content of the agreement concluded by 44 states was a currency order based on fixed exchange rates, which came into effect after the end of the Second World War. The US dollar and all associated currencies are based on a fixed ratio to the troy ounce of gold. Linked to this was the US promise to exchange the dollar for gold at any time. This US obligation was lifted in 1971. Various countries left the system of fixed exchange rates and allowed their currencies to float, which ultimately led to the dissolution of the system of fixed exchange rates.
As part of the Bretton Woods Agreement, the International Monetary Fund (IMF or IMF) was founded as well as the “Bank for Reconstruction and Development”, which as the “World Bank” still performs important financing tasks today.
In July 1944, representatives from 44 nations met in Bretton Woods (New Hampshire, USA) for the monetary and financial conference of the UN. The agreements on the establishment of the IMF and the World Bank (International Bank for Reconstruction and Development) were also concluded.
City in the US state of New Hampshire, where the United Nations Monetary and Financial Conference with 44 countries took place on July 23, 1944. Elements of the British “Keynes Plan” and the American “White Plan” found their way into the international agreement for the “comprehensive reorganization of the world economy”. The aim was to create a functioning international monetary system that would avoid devaluation races and protectionism. The aim was to free world trade from currency weaknesses and trade barriers at the most stable exchange rates possible. The core elements were:
Fixed parity of USD 35 per ounce of gold (gold foreign exchange standard);
unlimited US obligation to buy and sell dollars at that price;
Determination of the exchange rates (parities) of the other currencies against the US dollar (key currency);
Obligation of the central banks of the other countries to stabilize their exchange rates through foreign exchange market interventions within a band of 1% around these parities;
the possibility of changing parities in the event of "fundamental balance of payments problems";
Establishment of the International Monetary Fund (IMF) as an institution for international lending in the event of temporary balance of payments problems. In addition, the World Bank Group was founded for the purpose of financing development and the General Agreement on Tariffs and Trade (GATT) was initiated.
Despite the heterogeneity of its member states, this system worked relatively well with the help of its adaptation and financial support. Its end was essentially brought about by the inadequate monetary discipline of the US, the key currency country. Their financing of public budget deficits through an expansive monetary policy (partly due to the Vietnam War) endangered the gold currency standard and, in addition to the creation of international liquidity (e.g. through special drawing rights (SDR)), increased inflationary tendencies in the associated countries. Towards the end of the 1960s, the gold convertibility of the US dollar was initially restricted. In addition, the parities were adjusted only hesitantly to changes in economic influencing factors (e.g. gold shortfall or dollar surplus). The consequences were increasingly destabilizing speculations
Hot money). In 1973 the system finally collapsed in several stages, but its institutions survived with changed tasks. Europe went over to the European Exchange Rate Union (European currency snake, European Monetary System (EMS)).
In socialist economics: At the 1944 UN monetary and financial conference in Bretton Woods, the basic features of a new world monetary system, the establishment of the IMF and the World Bank were decided.
The Bretton Woods system should develop the economic and financial relations and world trade of the participating states on more stable foundations. A fund financed by the member states was set up to stabilize exchange rates. The budget discipline of the member countries was called for, the exchange rates were based on the gold standard and were pegged to the dollar. This system slowly collapsed between 1968 and 1973. In 1971 the USA had to withdraw its conversion promise (exchange of gold for dollars), in 1973 the transition to free exchange rates took place. > World economy
Fixed exchange rate system based on the US promise to convert US dollars into gold at any time. The construction of this monetary system was based on the Bretton Woods (USA) agreement of July 1944 within the framework of the monetary and financial conference of the United Nations. The Bretton Woods system came into effect after the end of World War II and was put into effect in 1973 after the US lifted its gold redemption obligation in 1971. Most recently, almost all countries in the world outside the Eastern Bloc and China belonged to the system. Other results of the Bretton Woods Agreement were the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank).
The international monetary system established by the western states in the American city of Bretton Woods in 1944. The aim was to promote world trade by removing barriers to payment transactions. In principle, this should be achieved by agreeing fixed exchange rates within narrow fluctuation ranges, free exchangeability of currencies (convertibility) and mutual credit in the event of temporary balance of payments imbalances. The International Monetary Fund (IMF) was set up to provide the loans. At the same time, the World Bank was founded to finance development projects. In 1973 the system of fixed exchange rates was abandoned. However, the institutions still exist and, in particular, fulfill the task of lending to countries with weak currencies.
International Monetary Fund system. As a result of the negative experiences of the global economic crisis and the foreign exchange management that restricted world trade before the Second World War, representatives of the most important industrial nations met in 1944 in Bretton Woods for a currency conference in order to establish a functioning international currency system for the post-war period. In the Bretton Woods Agreement, on the one hand, the maintenance of fixed exchange rates (orderly conditions), the reintroduction of the convertibility of currencies and, on the other hand, rules of conduct for the case of balance of payments imbalances were established and the IMF was created as the legal and institutional framework for the new currency agreements. The central banks of the participating countries had to intervene to ensure that the exchange rate of their currencies deviated from the fixed parity only within a certain range. In order to meet these obligations, they kept currency reserves in gold and / or US $. Later, the currency reserves were supplemented by special drawing rights of the IMF, which expanded the liquidity and debt leeway of the member countries through the possibility of purchasing the hard currencies of other countries. IMF credit facilities could be drawn upon in the event of imbalances in the balance of payments. Only in the case of fundamental imbalances in the balance of payments was it possible to adjust the parity of the currency in question, i.e. to devalue or revalue (level flexibility). The aim was to enable the best possible development of world trade by setting fixed exchange rates. Deficit countries, i.e. countries with a permanently negative foreign exchange balance whose currency reserves were gradually being depleted, were only able to meet their obligations under the monetary system by changing their economic policy or by taking out international loans. It was the task of the IMF to grant loans for these purposes. The loans were financed from contributions from the member countries (subscriptions). Germany joined the IMF in 1952, which meant that it also participated in the exchange rate system. The collapse of the exchange rate-related part of the Bretton Woods system in 1971-73 was among other things. Consequence of the abolition of the gold convertibility of the US $, continuous weakening of the economic position of the USA, increased fundamental balance of payments imbalances of important world trading nations. The US committed itself to exchanging US $ for gold and vice versa. Small deviations of the exchange rates from the parities were allowed. Latest. when the upper or lower intervention point was reached, the relevant central bank was obliged to intervene by selling or buying certain amounts of foreign currency. In the event of persistent balance of payments difficulties, a readjustment of the dollar parity was possible with the consent of the IMF. The IMF exchange rate system agreed upon in Bretton Woods failed because the central banks of the countries involved did not comply with the necessary rules of conduct for a system of fixed exchange rates. Fixed exchange rates do not allow an autonomous economic policy of the participating countries with a full convertibility of the currencies. Due to different monetary and fiscal policies, some countries tended to run permanently in deficits, while other countries showed permanent surplus positions, so that a correction was only possible by adjusting exchange rates or by economic policy measures that could hardly be implemented. In addition, the USA was able to offset its deficits in its own currency and was therefore not forced to adopt a stability-oriented and internationally compliant economic and financial policy.
Term for the international monetary system after the Second World War.
In Bretton Woods, a seaside resort on the American east coast, took place in July
In 1944 the "United Nations Monetary and Financial Conference" took place, at which the agreement for the creation of an International Monetary Fund took place
and the World Bank. These agreements formed the basis of the
international monetary order after the war and are (in changed
Version) still in force.
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