THE BRETTON WOODS SYSTEM

Introduction

Harry Dexter White

John Maynard Keynes

Events leading up to the conference

• Restrictive market practices which caused the

devaluation, deflation and depression that

defined the economy of the 1930s.

• World War II

• The gold standard

• Intended to govern currency regulations and

establish legal obligations (through the IMF)

• Set a standard for exchange rates

• Establish international monetary cooperation

• Money pool from which member nations can

borrow funds

Goals of the Conference

Outcome(formally established December 27, 1945)

• “Adjustable peg” currency • Quotas embedded in the IMF• Members were forbidden to engage in

discriminatory currency practices• The creation of the IMF and World Bank• The dollar standard

• Post-war monetary relations

were unstable

• The member nations

underestimated the strength

of their funds... after two

years of lending, the IMF was

drained of its money

Problems

The Implied Bargain

The U.S. becomes a global hegemon due to strength of the dollar

US's allies acquiesce to this hegemonic system because it benefits their own economies

U.S. allows allies’ use of the system for their own benefit

U.S. is able to act unilaterally to secure its own interests

The End of the Bretton Woods System

• Due to the costs of the Vietnam War and nations

trading dollars for gold.

• The link between gold and the dollar is severed.

• Flexible exchange rates allow for countries to

adjust to increased prices.

• The formation of the European Monetary System.

The World Bank and IMF are still active, although they have been

severely criticized for some of their policies

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