When Did the Bretton Woods Agreement End

When Did the Bretton Woods Agreement End


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In the event of a current account deficit, if the members of the Fund do not have the reserves, they may borrow foreign currency according to the level of its quota. In other words, the higher the country`s contribution, the more money it could borrow from the IMF. Roosevelt and Henry Morgenthau insisted that the Big Four (the United States, Britain, the Soviet Union, and China) participate in the Bretton Woods Conference in 1944,[32] but their goal was thwarted when the Soviet Union did not join the IMF. In the past, the reasons why the Soviet Union decided not to subscribe to the articles until December 1945 have been the subject of speculation. But since the publication of the relevant Soviet archives, it is now clear that the Soviet calculation was based on the behavior of the parties that had actually expressed their approval of the Bretton Woods agreements. [Citation needed] The lengthy debates on ratification that had taken place in Britain and the United States were read in Moscow as evidence of the rapid disintegration of the war alliance. [Citation needed] But the United States, as a nation likely to be a creditor and eager to assume the role of center of global economic power, took advantage of White`s plan, but targeted many of Keynes` concerns. White saw a role for global interventions in an imbalance only when it was caused by currency speculation. The dates are those on which the tariff was introduced; “*” means a variable interest rate provided by the IMF[51] [not precise enough to be verified] After the end of World War II, the United States held $26 billion in gold reserves, out of an estimated total of $40 billion (about 65%). As world trade grew rapidly in the 1950s, the size of the gold base increased by only a few percentage points. In 1950, the U.S. balance of payments fluctuated in the negative. The first U.S.

response to the crisis came in the late 1950s, when the Eisenhower administration imposed import quotas on oil and other restrictions on trade exits. More drastic measures have been proposed, but not implemented. However, with a deepening recession that began in 1958, this reaction alone was not sustainable. In 1960, with the election of Kennedy, decades of efforts began to keep the Bretton Woods system priced at $35 an ounce. The first attempt was the creation of the London Gold Pool on 1 November 1961 between eight nations. The theory behind the pool was that the peaks in the price of gold on the open market set by the fixing of morning gold in London could be controlled by selling a pool of gold on the open market, which would then be restored when the price of gold fell. The price of gold has soared as high as $40 an ounce in response to events such as the Cuban Missile Crisis and other minor events. The Kennedy administration designed a radical change in the tax system to further boost productive capacity and thus exports. This culminated in the 1963 tax cut program, which aimed to maintain the $35 anchor. The support of money by the gold standard became a serious problem in the late 1960s. In 1971, the problem was so serious that US President Richard Nixon announced that the ability to convert the dollar into gold would be “temporarily” suspended.

This decision was inevitably the straw that broke the camel`s back for the system and the agreement it described. Robert Triffin (1960) captured the problems in his famous dilemma. Since the Bretton Woods parities declared in the 1940s had understated the price of gold, gold production would not be sufficient to provide the resources needed to finance the growth of world trade. The deficit would be offset by capital outflows from the United States, which manifest as a balance of payments deficit. Triffin postulated that the stock of U.S. dollar liabilities would increase the likelihood of a classic bank run if monetary authorities in the rest of the world converted their dollar holdings into gold (Garber, 1993). According to Triffin, when the tipping point reached, the U.S. monetary authorities would tighten monetary policy, leading to global deflationary pressures. Triffin`s solution was to create a form of global liquidity like Keynes` Bancor (1943) to replace US dollars in international reserves.

The IMF was designed to lend to countries with balance of payments deficits. Short-term balance of payments difficulties would be overcome by IMF loans, which would facilitate exchange rate stability. This flexibility meant that a Member State did not have to trigger a depression to reduce its national income to such a low level that its imports would eventually fall into its capacity. In this way, countries should be spared the need to resort to conventional medicine to plunge into drastic unemployment in the face of chronic balance of payments deficits. Before World War II, European nations – especially Britain – often resorted to it. As chief economist of the US Treasury in 1942-44, Harry Dexter White drafted the US Plan for International Access to Liquidity, which rivaled Keynes` plan for the British Treasury. Overall, White`s program tended to favor incentives designed to create price stability in global economies, while Keynes wanted a system that would promote economic growth. The “collective agreement was a huge international undertaking”, the preparation of which took two years before the conference.

These were numerous bilateral and multilateral meetings aimed at finding common ground on the policies that would constitute the Bretton Woods system. The Bretton Woods rules, set out in the Articles of Agreement of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed exchange rates. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to trade freely. The IMF`s modest credit facilities were clearly not sufficient to deal with Western Europe`s huge balance of payments deficits. The problem was exacerbated by the IMF`s reaffirmation in the Bretton Woods Articles of Agreement that the IMF could only lend for current account deficits and not for capital and reconstruction purposes. Only the United States contribution of $570 million was actually available for IBRD loans. Since the only market available for IBRD bonds was the conservative Wall Street banking market, the IBRD was forced to pursue a conservative lending policy that only granted loans when repayment was secured. Faced with these problems, the IMF and the IBRD itself admitted in 1947 that they could not cope with the economic problems of the international monetary system. [30] The agreement also facilitated the creation of extremely important structures in the financial world: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now known as the World Bank.

To prepare for the rebuilding of the international economic system while World War II was still raging, 730 delegates from the 44 Allied countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. Delegates deliberated from 1 to 22 July 1944 and signed the Bretton Woods Agreement on the last day. With the establishment of a system of rules, institutions, and procedures to regulate the international monetary system, these agreements created the IMF and the International Bank for Reconstruction and Development (IBRD), now part of the World Bank Group. The United States, which controlled two-thirds of the world`s gold, insisted that the Bretton Woods system be based on both gold and the U.S. dollar. Soviet representatives attended the conference, but later refused to ratify the final agreements, claiming that the institutions they created were “branches of Wall Street.” [1] These organizations began their work in 1945 after a sufficient number of countries had ratified the Convention. Many feared that the collapse of the Bretton Woods system would put an end to the period of rapid growth. In fact, the transition to flexible exchange rates was relatively smooth, and it certainly came at the right time: flexible exchange rates made it easier for economies to adapt to more expensive oil when the price suddenly began to rise in October 1973.

Variable interest rates have since facilitated adjustments to external shocks. Despite the economic efforts imposed by such a policy, the fact that they were at the center of the international market gave the United States unprecedented freedom of action in the pursuit of its foreign policy objectives. A trade surplus made it easier to keep armies abroad and invest outside the United States, and because other countries could not support operations abroad, the United States had the power to decide why, when, and how to intervene in global crises. .