The Agreement Reached At Bretton Woods Established The

The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations to oversee the new system. As chief international economist at the U.S. Treasury, Harry Dexter White designed in 1942-44 the U.S. project of access to liquidity at the international level, which competed with Keynes` plan for the British Treasury. Overall, White`s scheme tended to favour incentives to bring price stability to global economies, while Keynes wanted a system that promoted economic growth. The „collective agreement was a huge international undertaking“ for which it was prepared two years before the conference. These were numerous bilateral and multilateral meetings to find common ground on the policy of the Bretton Woods system. Despite its name, the World Bank was not (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 focus has changed in providing lending to economic development projects in emerging countries.

The support of money by the gold standard began to become a serious problem in the late 1960s. In 1971, the problem was so serious that U.S. President Richard Nixon said the possibility of turning the dollar into gold was suspended „temporarily.“ The step was inevitably the last straw for the system and the agreement he sketched. The Bretton Woods Agreement was created in 1944 at a conference of all allied nations of World War II. It took place in Bretton Woods, New Hampshire. Meanwhile, to boost confidence in the dollar, the United States has separately agreed to tie the dollar to gold at a price of $35 an ounce. With this rate, foreign governments and central banks could exchange dollars for gold. Bretton Woods set up a dollar-based payment system that defined all currencies against the dollar, themselves convertible into gold, and especially „as well as gold“ for trade. The U.S. currency was now effectively the world currency, the norm to which any other currency was bound. The most important currency in the world has been most international transactions denominated in US dollars.

The agreement could not promote discipline from the Federal Reserve or the U.S. government. The Federal Reserve was worried about a rise in the domestic unemployment rate due to the depreciation of the dollar. In an attempt to undermine the efforts of the Smithsonian agreement, the Federal Reserve lowered interest rates in order to pursue a predefined domestic policy goal of full domestic employment. With Smithsonian`s agreement, member countries expected dollars to return to the United States, but lower interest rates inside the United States led dollars to continue flowing from the United States to foreign central banks. The entry of dollars into foreign banks continued the process of monetizing the dollar abroad and thwarted the goals of the Smithsonian agreement. As a result, the price of the dollar on the free gold market continued to put pressure on its official price; Shortly after the announcement of a 10% devaluation in February 1973, Japan and the EEC countries decided to let their currencies fluctuate freely. .