Bretton Woods Agreements

As they study to boost an international career in finance, experts learn about the effects of international agreements such as Bretton Woods and the institutions they have created. Developing a strong international financial strategy means anticipating the impact of central bank announcements and actions, managed in the same way by national governments and international bodies. 730 delegates from the 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. Delegates deliberated from July 1 to 22, 1944 and signed the Bretton Woods Agreement on the last day. Through the establishment of a system of rules, institutions and procedures for regulating the international monetary system, these agreements created the IMF and the International Bank for Reconstruction and Development (IBRD), now part of the World Bank Group. The United States, which controlled two-thirds of the world`s gold, insisted that the Bretton Woods system was based on both gold and the U.S. dollar. Soviet representatives attended the conference, but then refused to ratify the final agreements and claimed that the institutions they had created were “branches of Wall Street.” [1] These organizations were commissioned in 1945 after the agreement was ratified by a sufficient number of countries. Officially founded on December 27, 1945, when the 29 participating countries signed their statutes at the Bretton Woods conference, the IMF was to be the rules and the main instrument of international public administration. The Fund began its financial operations on March 1, 1947. Any exchange rate change of more than 10% is required for IMF approval.

She advised countries on policies that influence the monetary system and lent reserve currencies to countries that had incurred balance-of-payments debts. Despite its name, the World Bank has not been (and is) not the central bank of the world. At the time of the Bretton Woods agreement, the World Bank was created to lend to European countries devastated by the Second World War. The World Bank`s objective has changed to silver credits for economic development projects in emerging countries. Buying money would reduce the supply of money and increase their price. If the price of a currency became too high, the central bank would print more. This printing production would increase supply and reduce the price of money. This method is a monetary policy often used by central banks to control inflation. Until the First World War, most countries were on the gold standard. But they cut the tie on gold so they could print the money they needed for their war costs. This influx of money has caused hyperinflation, as the supply of money has overwhelmed demand. After the war, countries returned to the security of the gold standard.

By 1968, the attempt to defend the dollar with a firm commitment of $35 per ounce, the policies of the Eisenhower, Kennedy and Johnson administrations had become increasingly untenable. Gold outflows from the United States accelerated and, although Germany and other nations promised to maintain gold, the Johnson administration`s unbalanced budget spending turned the dollar shortage of the 1940s and 1950s into a wave of dollars in the 1960s. In 1967, the IMF agreed in Rio de Janeiro to replace the department in tranches established in 1946. Special drawing rights (DSDs) were set at one dollar, but were not usable for transactions other than between banks and the IMF. Nations were required to accept SDRs up to three times their allocation and interest would be charged or credited to each nation on the basis of their participation in the SDR. The initial interest rate was 1.5%. In the wake of the 2008 global financial crisis, some policymakers such as Chace[46] and others called for a new international monetary system, including some at Bretton Woods II.