The bretton woods system

Bretton woods system

1. Presented By- Sanjog Zimbar The Bretton woods system

2. Content Introduction Goals of conference Expected benefit Outcome Problems Evaluation and Breakdown. Example

3. Key actors Harry Dexter White (US) American Minister of state John Maynard Keynes (GB) British Economist

4. Introduction Bretton wood system established in 1944 . Large capital movement and less controllable. Requirement of stabilizing system. Financial security and stable situation. Restructure international finance and currency relationships. Implementing a system of fixed exchange rates with the U.S. dollar as the key currency .

5. Goals of conference Intended to govern currency regulations and establish legal obligations (through the IMF ). Set a standard for exchange rates. ( 1 ounce gold= $ 35) Establish international monetary cooperation . Money pool from which member nations can borrow funds.

6. Expected benefit from the system Through capital controls, the countries would pursue the full employment and price stability (low inflation) and the external balance (keeping exchange rates stable) simultaneously.

7. outcome Quotas embedded in the IMF. Several conferences dealing with the world monetary problems caused by the ‘Great Depression’ had ended. The creation of the IMF and World Bank. The dollar standard.

8. Problems Occasional devaluations under the supervision of the IMF to remove “fundamental disequilibria” in the balance of payments (BOP). United States free from external economic pressures. Countries were not willing to accept the high inflation rates. Countries no longer based this value on gold.

9. Evolution and Breakdown The reserves of most countries became a mixture of gold and dollars. In 1958, countries in Europe completed the restoration of convertibility. National interest rates were closely linked with each other due to the opportunity to move funds across borders . In 1970s the balance of payment crisis were so massive that finally countries couldn’t keep up with the adjustments, so the system collapsed and replaced with a regime of floating exchange rates

10. example If Britain devaluated pound due to a CA deficit, the foreign currency value of pound assets would decrease, thus savings would shift into other currencies. In order to hold the pound’s exchange rate against the dollar pegged, the Bank of England should sell foreign assets to market and buy pounds instead. Now, without enough reserves, the foreign reserves’ loss might cause a devaluation, if large enough

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