In a system where currencies fluctuate freely, four pounds could be worth one dollar the following month, two dollars the following month and 50 cents the following month. The ever-changing value of currencies can make it difficult for governments and businesses to plan and conduct international trade. Setting a fixed conversion value made it much easier for companies to predict their costs, regardless of where they operated and the currency they used. Despite the disintegration, the summit and the Bretton Woods agreement are responsible for a number of particularly important aspects in the financial world. First of all, there is the creation of the IMF and the World Bank. These two institutions are still of crucial importance to the global economy today. In order to ensure economic stability and political peace, States agreed to work together to closely regulate the production of their currencies in order to maintain fixed exchange rates between countries, with the aim of facilitating international trade more easily. This was the basis of the American vision of global free trade in the post-war period, which also included reducing tariffs and, among other things, maintaining a trade balance via fixed exchange rates that would be favorable to the capitalist system. Under the agreement, countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar. When the value of a country`s currency became too low against the dollar, the bank bought its currency on the foreign exchange markets.
The agreement limited the value of a currency and forced it to stay within a small range. Someone who had four pounds knew that those pounds were worth about a dollar. In July 1945, Congress passed the Bretton Woods Agreements Act, which authorized U.S. membership in the IMF and IBRD. Both organizations were officially founded on December 27, 1945. The fixed exchange rate system established at Bretton Woods lasted almost three decades; It was only after the dollar exchange crises of August 1971 (when President Richard Nixon suspended the convertibility of the dollar into gold) and February/March 1973 that exchange rate fluctuations became the norm for the currencies of the major industrialized countries. The Bretton Woods Agreement was one of those turning points in the development of modern financial systems, establishing the dollar as the standard currency for world trade after World War II. While the Bretton Woods system expired under the Nixon administration, the financial institutions created by the agreement – the International Monetary Fund and the World Bank – are still part of 21st century finance. The Group of Ten met in December 1971 at the Smithsonian Institution in Washington D.C. and signed the Smithsonian Agreement.
The U.S. has promised to fix the dollar at $38 an ounce with trading margins of 2.25 percent, and other countries have agreed to revalue their currencies against the dollar. The group also planned to balance the global financial system through special drawing rights only. Below is a brief summary of why the world`s economies have become an integral part of the Bretton Woods system, how it works, how it fails, and why the agreement has an impact on the development of the international monetary system. Modern economists can gain insights and insights by discovering the past of their profession. Roosevelt and Henry Morgenthau insisted that the Big Four (the United States, Britain, the Soviet Union, and China) participate in the Bretton Woods Conference in 1944, but their goal was thwarted when the Soviet Union did not join the IMF. In the past, the reasons why the Soviet Union decided not to subscribe to the articles until December 1945 have been the subject of speculation. But since the publication of the relevant Soviet archives, it is now clear that the Soviet calculation was based on the behavior of the parties that had actually expressed their approval of the Bretton Woods agreements. [Citation needed] The lengthy debates on ratification that had taken place in Britain and the United States were read in Moscow as evidence of the rapid disintegration of the war alliance.
[Citation needed] Beginning in the mid-1970s, the IMF sought to address the balance of payments challenges faced by many of the world`s poorest countries by providing concessional financing through the trust fund. In March 1986, the IMF created a new concessional lending program called the Structural Adjustment Facility. The SAF launched the Extended Structural Adjustment Facility in December 1987. One of the main features of the Bretton Woods system was a fixed conversion between currencies and the US dollar and the US dollar and gold. The value of the dollar was set at 1/35 of an ounce. The values of the other currencies were pegged to the US dollar. Those who owned other currencies that fell under the agreement always knew how many dollars they could get for their pounds sterling or French francs. Officially created on December 27, 1945, when the 29 participating countries signed their articles of agreement at the Bretton Woods Conference, the IMF was to be the guardian of the rules and the main instrument of international public administration. The Fund began its financial activities on March 1, 1947.
IMF approval was required for any exchange rate changes greater than 10 per cent. It advised countries on policies affecting the monetary system and lent reserve currencies to countries that had taken on balance of payments debt. The agreement also established the World Bank and the International Monetary Fund, which continue to play an important role in the global economy, providing loans to countries that need support to grow their economies. The Bretton Woods Agreement was a financial agreement negotiated in Bretton Woods, New Hampshire, in 1944 that determined the value of the U.S. dollar against gold and other currencies against the U.S. dollar. Members of the Bretton Woods system agreed to avoid trade wars. For example, they would not strictly lower their currencies to increase trade. But they could regulate their currencies under certain conditions. For example, they could take action if foreign direct investment began to destabilize their economies. They could also adjust the value of their currency to rebuild after a war. The system dissolved between 1968 and 1973.
In August 1971, US President Richard Nixon announced the “temporary” suspension of the convertibility of the dollar into gold. While the dollar had struggled within the parity set at Bretton Woods for most of the 1960s, this crisis marked the collapse of the system. An attempt to revive fixed exchange rates failed, and in March 1973 the major currencies began to float against each other. Today, many countries allow the value of their currency to fluctuate freely against other currencies. Other governments peg the value of their currency to a reserve currency such as the U.S. dollar or the euro, or the value of a basket of multiple currencies. The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations that would oversee the new system. A fund is made available to the IMF consisting of contributions from member countries in gold and in their own currencies. Initial quotas totalled $8.8 billion. When they join the IMF, members are given “quotas” that reflect their relative economic power – and as a kind of loan deposit, they are required to pay a “subscription” equal to the quota. They pay the subscription as a 25% currency convertible into gold or gold (in fact, the dollar, which at the time was founded was the only currency that was still directly convertible for central banks at the time) and 75% in their own currency. .