The Purpose Of The Bretton Woods Agreement Was To

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 IMF`s modest credit facilities have clearly not been sufficient to cope with the huge deficits in Western Europe`s balance of payments. The problem was compounded by the reaffirmation by the IMF Governing Council of the Bretton Woods Agreement that the IMF can only lend to current account deficits and not for capital and reconstruction purposes. Only the US$570 million contribution was actually available for PFI loans. Moreover, since the only market available for IBRD bonds was the conservative Wall Street banking market, the IBRD was forced to adopt a conservative credit policy that only provided loans if repayment was secured. Faced with these problems, the IMF and the IRD themselves admitted in 1947 that they could not cope with the economic problems of the international monetary system. [30] Here is a brief summary of why global economies were part of the Bretton Woods system, how the system worked, why it failed, and what the impact of the agreement was on the development of the international monetary system. Modern economists can draw a perspective and insight from the discovery of their profession`s past. 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. 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. But on a larger scale, the agreement brought together 44 nations from around the world, who brought them together to solve a growing global financial crisis. It has helped strengthen the global economy as a whole and maximize international trade benefits. The agreement also facilitated the creation of very important financial structures: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now known as the World Bank. 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. The aim of the Bretton Woods meeting was to put in place a new system of rules, rules and procedures for the world`s major economies to ensure their economic stability.