Question

WRITE A SHORT NOTE ON BREETON WOODS SYSTEM

Answer 1

The Bretton Woods system was the first system used to control the value of money between different countries. It meant that each country had to have a monetary policy that kept the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold.

The International Monetary Fund (IMF) was created to fight against temporary imbalances of payments. The Bretton Woods system was the first monetary order that organized monetary relations among independent nation-states.

It set out the rules for commercial and financial relations among the world's major industrial states.

Plans to rebuild the international economic system after the end of World War II started before the war ended. 730 delegates from all 44 Allies of World War II came to Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. The delegates discussed and then signed the Bretton Woods Agreements during the first three weeks of July 1944.

The planners at Bretton Woods set up a system of rules, institutions, and procedures to regulate the international monetary system. They started the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF). These organizations became active in 1946 after enough countries had ratified the agreement.

Until the early 1970s, the Bretton Woods system worked. It controlled conflict and achieved the common goals of the leading states that had created it, especially the United States. But in 1971, In the face of increasing strain, the United States decided not to allow the conversion of dollars to gold and the system collapsed.

Answer 2

Number of countries having a banking crisis in each year since 1800. This is based on This Time is Different: Eight Centuries of Financial Folly[2] which covers only 70 countries. The general upward trend might be attributed to many factors. One of these is a gradual increase in the percent of people who receive money for their labor. The dramatic feature of this graph is the virtual absence of banking crises during the period of the Bretton Woods agreement, 1945 to 1971. This analysis is similar to Figure 10.1 in Reinhart and Rogoff (2009). For more details see the help file for "bankingCrises" in the Ecdat package available from the Comprehensive R Archive Network (CRAN).