Oct 08

Significance Of Bretton Woods Agreement

Despite its name, the World Bank was not (and is) not the central bank of the world. At the time of the Bretton Woods Agreement, the World Bank was created to lend to European countries devastated by the Second World War. The World Bank`s focus has changed in providing lending to economic development projects in emerging countries. The support of money by the gold standard began to become a serious problem in the late 1960s. In 1971, the problem was so serious that U.S. President Richard Nixon said the possibility of turning the dollar into gold was suspended “temporarily.” The step was inevitably the last straw for the system and the agreement he sketched. The agreement does not provide for the creation of international reserves. She thought that a new production of gold would be enough. In the event of structural imbalances, it expected national solutions, such as an adjustment in monetary value or an improvement in a country`s competitive position by other means. However, the IMF has had little capacity to promote such domestic solutions.

The Bretton Woods countries decided not to give the IMF the power of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold, which will be held by the IMF. Each member of the Bretton Woods system then had the right to borrow what it needed as part of its contributions. The IMF was also responsible for the implementation of the Bretton Woods agreement. The United States launched the European Economic Recovery Plan (Marshall Plan) to provide significant financial and economic assistance for the reconstruction of Europe, mainly through grants, not loans. Countries that are part of the Soviet bloc, for example. B Poland, were invited to receive the subsidies, but obtained a favourable agreement with the COMECON of the Soviet Union. [31] In a speech at Harvard University on June 5, 1947, U.S. Secretary of State George Marshall stated that the IMF was attempting to impose periodic discontinuous exchange rate adjustments (changes in a member`s nominal value) through an international agreement.

Member States were allowed to adjust their exchange rate by 1%. This tended to restore the balance of their trade by increasing their exports and reducing imports. This would only be permissible in the event of a fundamental imbalance. A decrease in the value of a country`s money has been called a devaluation, while an increase in the value of the country`s money has been called a revaluation. The Bretton Woods system is a set of uniform rules and guidelines that provide the framework for the establishment of fixed international exchange rates. Essentially, the agreement invited the newly created IMF to set the fixed exchange rate of the world`s currencies. Each country represented took responsibility for maintaining the exchange rate, with incredibly narrow margins above and below. Countries that find it difficult to stay within the fixed exchange rate window could ask the IMF for an adjustment in interest rates, for which all allied countries would then be responsible. The Bretton Woods Agreement of 1944 established a new global monetary system. It replaced the gold standard with the US dollar as the world currency. In this way, it established America as a dominant power in the global economy. After the agreement was signed, America was the only country capable of printing dollars.

The U.S. had huge trade surpluses, and U.S. reserves were huge and growing. It was necessary to reverse this river. Even if all nations wanted to buy the United States…