Question

Describe any three features of bretton woods agreement.

Answer 1

The Bretton Woods system as a monetary management system was set as the rules for commercial and financial relations among the world’s major industrial nations. The planners at Bretton Woods established the International Bank for Reconstruction and Development (IBRD) (now known as one of the five institutions in the World Bank Group) and the International Monetary Fund (IMF). The reason behind setting up such a system of rules, institutions, and procedures was to manipulate the international monetary system. After satisfactory number of countries had ratified the agreement, this system became operational in the year 1946. Under main features of the Bretton Woods system, it was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value. This value was expressed in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States’ suspension of convertibility from dollars to gold. By this time, due to inflation in the United States and a growing short fall in American trade were depressing the value of the dollar. Americans advocated Germany and Japan to appreciate their currencies. But both of the countries already had favorable payments balances. And both of the nations were disinclined to this decision. Because of the reason that raising their currency value might result in increased prices for there goods and which can further affect their exports. Lastly, the United States neglected the fixed rate of the dollar and allowed it at “float” rate. This meant to change the value of dollar against other currencies. The value of dollar swiftly started falling down. World leaders wanted to stimulate the Bretton Woods system in 1971, but the effort failed. By 1973, the float rate system was adopted by United States and other nations. Thus the delayed adjustment of the parties to change in the economic environment of the countries was the weakest point of Bretton Woods Agreement. This led to a lack of trust and strike at the foundations of guesswork. Another considerable problem was that one national currency had to be an International reserve currency at that time. This made the national monetary and economic policy of the United States liberated from external fiscal pressures, while greatly influencing those external economies. To guarantee international liquidity; USA was enforced to run shortage in their balance of payments, to avoid world inflation. However, in the 1960s they ran a policy that restricted the convertibility of the U.S. dollar to compete the insufficient reserves to meet the currency supply and demand. But other member nations were not ready to accept the high inflation rates and the value of dollar ended up being weak. Hence, the system of Bretton Woods collapsed. Set of multilateral agreements on International economic relations, negotiated at the UN Monetary and Financial conference held in July 1944 (in the aftermath of second world war) attended by the finance ministers of the U.K. N U.S. and other Allied countries. It is distriactive features are: (i) Financing the re-construction of the Post war Europe. (ii) Avoiding unstable exchange rates and competitive devaluations of pre Second World War Western economies by instituting fixed exchange rates. (iii)World Bank (then called International Bank for Reconstruction & Development or IBRD, was established to serve the first objective, and international Monetary fund (IMF) for the second.

Answer 2

• The Bretton wood conference was convened in July, 1944 at Bretton Woods in New hampshire, USA.

•  Its main aim was to preserve economic stability and full employment in the industrial world.

•  The conference established International Monetary Fund (IMF) and the international Bank for Reconstruction and development (World Bank).