FoundersFounders
Harry Dexter White -Harry Dexter White -Chief International Chief International Economist at the U.S. Economist at the U.S. Treasury Treasury
John Maynard Keynes John Maynard Keynes – U. K. Treasury – U. K. Treasury AdvisorAdvisor
44 Delegate Nations44 Delegate Nations Australia IndiaAustralia India Belgium IranBelgium Iran Bolivia IraqBolivia Iraq Brazil LiberiaBrazil Liberia Canada LuxembourgCanada Luxembourg Chile MexicoChile Mexico China NetherlandsChina Netherlands Colombia New ZealandColombia New Zealand Costa Rica NicaraguaCosta Rica Nicaragua Cuba NorwayCuba Norway Czechoslovakia PanamaCzechoslovakia Panama Dominican Republic ParaguayDominican Republic Paraguay Ecuador PeruEcuador Peru Egypt PhilippinesEgypt Philippines El Salvador PolandEl Salvador Poland Ethiopia Union of South AfricaEthiopia Union of South Africa France Union of Soviet Socialist Republics France Union of Soviet Socialist Republics
(USSR)(USSR) Greece United KingdomGreece United Kingdom Guatemala United StatesGuatemala United States Haiti UruguayHaiti Uruguay Honduras VenezuelaHonduras Venezuela Iceland YugoslaviaIceland Yugoslavia
Major AccomplishmentsMajor Accomplishments
International Monetary FundInternational Monetary Fund International Bank for Reconstruction International Bank for Reconstruction
and Developmentand Development
(focus on IMF)(focus on IMF)
Policies of the Depression eraPolicies of the Depression era
High tariff barriersHigh tariff barriers Competitive currency devaluationsCompetitive currency devaluations Discriminatory trading blocsDiscriminatory trading blocs
These policies adopted after WWI created an unstable international environment
Bretton-Woods goal: sustainable peace and prosperity through economic cooperation
International Monetary FundInternational Monetary Fund&&
Monetary Policy Monetary Policy
Fixed exchange rates Fixed exchange rates (The U.S. dollar tied to gold at $35 an ounce)(The U.S. dollar tied to gold at $35 an ounce)
1) Restrained monetary expansion1) Restrained monetary expansion
a) Loss of international reserves by foreign banks a) Loss of international reserves by foreign banks meant banks would be unable to maintain the meant banks would be unable to maintain the fixed dollar exchange rate. fixed dollar exchange rate.
b) U.S. obligation to redeem foreign b) U.S. obligation to redeem foreign accumulation accumulation of dollars for gold restricted U.S. of dollars for gold restricted U.S. monetary monetary growth. growth.
Creation of the Fund Creation of the Fund
Member countries contributed there Member countries contributed there currencies and gold to the fund.currencies and gold to the fund.
From this the IMF could lend to countries From this the IMF could lend to countries experiencing balance of payment experiencing balance of payment difficulties (short-term) avoiding currency difficulties (short-term) avoiding currency devaluation.devaluation.
If necessary changes in the exchange rate If necessary changes in the exchange rate could be made.could be made.
An adjustable exchange rate was not An adjustable exchange rate was not available to the U.S. dollaravailable to the U.S. dollar
Convertible CurrencyConvertible Currency
Convertible currency - one that may Convertible currency - one that may be freely exchanged for foreign be freely exchanged for foreign currencies.currencies.
Increased efficiency for multilateral Increased efficiency for multilateral trade.trade.
The U.S. and Canada became The U.S. and Canada became convertible in 1945convertible in 1945
Most European Countries waited until Most European Countries waited until 1958, Japan followed in 1964 1958, Japan followed in 1964
World CurrencyWorld Currency
It’s ease of conversion and the It’s ease of conversion and the prominence given to it from the Bretton-prominence given to it from the Bretton-Woods agreement quickly gave rise to the Woods agreement quickly gave rise to the U.S. dollar as the world reserve currency.U.S. dollar as the world reserve currency.
International trade was conducted in dollar International trade was conducted in dollar denominations.denominations.
Foreign central banks held their Foreign central banks held their international reserves in dollar assets.international reserves in dollar assets.
Balance of Payment CrisesBalance of Payment Crises
““Fundamental Disequilibrium” was Fundamental Disequilibrium” was thought to exist when a country thought to exist when a country maintained a continuing current maintained a continuing current account deficit.account deficit.
This may lead to a devaluation of the This may lead to a devaluation of the currency. Anyone holding this currency. Anyone holding this currency would incur a loss equal to currency would incur a loss equal to the amount of the exchange rate the amount of the exchange rate change.change.
Large current account surpluses Large current account surpluses made countries candidates for made countries candidates for revaluation.revaluation.
Selling local currency in the foreign Selling local currency in the foreign exchange market with the intent of exchange market with the intent of slowing appreciation resulted in large slowing appreciation resulted in large official reserves.official reserves.
Money supply would grow to quickly Money supply would grow to quickly which in turn would push up the price which in turn would push up the price level and disrupt the internal level and disrupt the internal balance.balance.
Fall of Bretton-WoodsFall of Bretton-Woods
Increasing balance of payment crises.Increasing balance of payment crises. U.S. currency pressure brought about U.S. currency pressure brought about
partly from cost of Vietnam War and a partly from cost of Vietnam War and a growing trade deficit.growing trade deficit.
President Nixon issued an executive order President Nixon issued an executive order in 1971 eliminating the gold standard and in 1971 eliminating the gold standard and devaluing the dollar.devaluing the dollar.
Floating exchange rates determined by Floating exchange rates determined by market trading replaced fixed exchange market trading replaced fixed exchange rates. rates.
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