The Bretton Woods system was put in place as a more stable replacement for the gold standard under which all currencies were converted to gold. Under the new agreement, the dollar was the standard for international transactions, which were valued at one ounce of gold. The fact that the United States held a large portion of the world`s gold reserves allowed the dollar to play its new role as a standard currency on which the stock markets were based. The Bretton Woods Agreement of 1944 introduced a new global monetary system. It replaced the gold standard with the U.S. dollar as the global currency. It thus established America as a dominant power in the global economy. After the agreement was signed, America was the only country with the ability to print dollars. The experience of the Great Depression, when the proliferation of exchange controls and trade barriers caused an economic catastrophe, was new in the minds of civil servants. Bretton Woods planners hoped to avoid a repeat of the debacle of the 1930s, when exchange controls undermined the international payment system that served as the basis for world trade. Governments` policy of the 1930s to increase the competitiveness of a country`s export products to reduce balance-of-payments deficits through monetary devaluation exacerbated national deflationary spirals, resulting in drastic national incomes, a contraction in demand, mass unemployment and a general decline in world trade. Trade in the 1930s was largely limited to currency blocs (groups of nations using an equivalent currency, such as the “sterling zone” of the British Empire).
These blocs have delayed international capital flows and foreign investment opportunities. While this strategy has tended to increase government revenues in the short term, it has significantly degraded the situation in the medium and long term. The collapse of Europe`s corporate structure during the war was complete. … Europe`s requirements for the next three or four years of foreign food and other essentials… mainly from the United States … are so far superior to their current ability to pay that they must receive considerable assistance or face a very serious economic, social and political deterioration. Bretton Woods planners set up a system of rules, institutions and procedures to regulate the international monetary system and created the International Bank for Reconstruction and Development (IBRD) (now one of the five World Bank Group institutions) and the International Monetary Fund (IMF). These organizations were put into service in 1946 after the ratification of the agreement by a sufficient number of countries. There was broad consensus among powerful nations that the lack of exchange rate coordination during the interwar period had exacerbated political tensions.
This facilitated the decisions of the Bretton Woods conference. In addition, all the Bretton Woods governments agreed that the monetary chaos of the interwar period had brought some valuable lessons. Harold James`s elegant essay is the book`s most thoughtful. The Bretton Woods agreement, he writes, was possible because it isolated the monetary settlement of the interminable trade disputes that trade wars lasted for 70 years. This useful collection of basic documents and essays marks the 75th anniversary of the Bretton Woods Agreement of July 20, 1944. The Bretton Woods system is mainly identified by the monetary agreement that established the International Monetary Fund (IMF) to help countries maintain fixed exchange rates. In fact, the IMF was part of a group of interdependent institutions, including the International Bank for Reconstruction and Development (IBRD), the precursor to the World Bank, and, three years later, the General Agreement on Tariffs and Trade, a precursor to the World Trade Organization, much later.