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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