Brettonwoods denise davies
-
Upload
ishtiyaq-ahmad -
Category
Business
-
view
72 -
download
0
description
Transcript of Brettonwoods denise davies
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
Britain’s 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 short-term
funds in times of crisis • Soon, the gold exchange standard
becomes the dollar exchange standard
The Implied Bargain
The U.S. becomes a global hegemon due to strength of the dollar
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
U.S. is able to act unilaterally to secure its own interests
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 wage-price freeze
• (2) He imposed a temporary tariff on imports.
• (3) The end of the Bretton Woods System
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– Members of European Economic Community
(now the EU) linked their currencies together
Bretton Woods II &Today’s 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/content/article/209/42675.html