The Bretton Woods

System

By: Denise Davies

History
Named for the Bretton Woods
Monetary Conference which took
place in New Hampshire, during
July 1-22, 1944.
44 allied nations and one neutral
US Treasury Harry Dexter White
and Britains Treasury John
Maynard Keynes collaborated for 2
1/2 years to formulate a plan for
post-war recovery

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

The Gold Standard

A certain amount of currency is
easily convertible into its
equivalent of gold
Towards the end of the war, many
nations, such as Britain, did not
want to return to the pre-war gold
standard, and sought for a more
stable standard

Goals of the Conference

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

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 manipulating their price levels and
exchange rates
4) The creation of the IMF and World Bank
(International Bank for Reconstruction and
Development)
5) The dollar standard

Problems
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

Results: Dollar Hegemony

This ultimately led to the U.S., the most
powerful nation in the world, taking
responsibility as global monetary manager
1) The US maintained an open market for
imports and trade
2) Granted long-term loans and grants to other
nations via the Marshall Plan and other aid
programs
3) Established a liberal lending policy for shortterm funds in times of crisis

Soon, the gold exchange standard

becomes the dollar exchange

The Implied Bargain

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

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

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

The End of the Bretton

Woods System

Due to the costs of the Vietnam

War and nations 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 wageprice freeze
(2) He imposed a temporary tariff
on imports.
(3) The end of the Bretton Woods

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 oil price shocks of
the 1970s
The formation of the European
Monetary System, to create fixed
exchange rates between participating
European nations

Bretton Woods II &

Todays World
On September 24-25, 2009,
President Obama met with the G20
nations where a realignment of
currency exchange rates was
proposed
The World Bank and IMF are still
active, although they have been
severely criticized for some of their
policies

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/con
tent/article/209/42675.html