...The Bretton Woods System : 1946- 1971 The Bretton Woods System (BWS) was implemented in 1946 under the Bretton Woods Agreement, each government obliged to maintain a fixed exchange rate for its currency vis-à-vis the dollar or gold. As one ounce of gold was set equal to $35, fixing a currency’s gold price was equivalent to setting its exchange rate relative to the dollar. The fixed exchange rates were maintained by official intervention in the foreign exchange markets. This intervention was about purchases and sales of dollars by foreign central banks against their own currencies whenever the supply and demand conditions in the market deviate from the agreed on par values. Any dollars acquired by the monetary authorities in the process of an intervention could then be exchanged for gold at the U.S Treasury. In principle, the stability of exchange rates removed uncertainty from international trade and investment transactions. Normally, if a country followed its own policies leading to a higher inflation rate than its trading partners would experience a balance of payments deficit as its good became more expensive, which means its exports will decrease. A deficit has consequences, an increase in the supply of the deficit country’s currency on the foreign exchange markets. The excess supply would demoralize the exchange value of the currency of that country, forcing its authorities to intervene. The nation would be required to buy with its reserves the excess supply of its own...
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...Bretton Woods System and world trade in post-war period Introduction This reading report is based on two technical papers( The Bretton Woods international monetary system: An historical overview by Michael D. Bordo 148 pages & The post-war rise of world trade: Does the Bretton Woods System deserve credit? By Andrew G. Terborgh 74 pages)on Bretton Wood System as well as the post war international trade system since the U.S has become the most powerful economy after World War II, that US dollar was at that time the dominant currency internationally speaking. The first paper is titled of “The Bretton Woods International Monetary System: An historical overview” by professor Michael D. Bordo who is an economic professor and Director of the center for Monetary and Financial History at Rutger University. His paper has a brief overview of Bretton Woods experience. From its emergence and how it evolved that influence the monetary convertibility and gold dollar standard, until its collapse due to the U.S depression in 1970s. I considered this article to be a very technical one that gives many details on Bretton Wood System in history, but the very interesting part could also be that the author has given the ideas that why Bretton Woods was very stable but lived so short. Meanwhile, the second paper I chose to read is “The Post-War Rise of World Trade: Does the Bretton Wood System Deserve Credit?” . This one is more of an analyzing paper written by Andrew G. Terborgh, economic professor...
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...of The Bretton Woods system. 1. What is The Bretton Woods System? The Bretton Woods agreement was created in a 1944 conference of all of the World War II allied nations. It took place in Bretton Woods, New Hampshire. Actually, according to Helleiner (2011), the creation of the Bretton Woods system happened when allied nations of WW2 decided to come up with an integrated monetary financial system to help nations rebuild after the war. The opportunity to create such a new system arose “in the early 1940s when the US & UK policy makers began to plan the organisation of the post-war international monetary and financial system”. In other words, the...
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...story of a small resort village, Bretton Woods, and the global impact it had on Europe and the rest of the world. Bretton Woods institutions were created in 1944 during the United Nations Monetary and Financial Conference at the Mount Washington Hotel (The Bretton Woods Committee, n.d.). The Bretton Woods institutions created an international basis for exchanging one currency for another. It also led to the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now known as the World Bank (Stephey, 2008) and the General Agreement on Tariffs and Trade (GATT)—the precursor to the World Trade Organization (WTO). In addition to establishing the World Bank, the Committee chose the U.S. dollar as the pillar of international monetary exchange. The meeting provided the world post World War II currency stability which was desperately needed. The Bretton Woods system itself may have collapsed in 1971, when President Richard Nixon severed the link between the dollar and gold — a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands. By 1973, most major world economies had allowed their currencies to float freely against the dollar. It was a rocky transition, characterized by plummeting stock prices, skyrocketing oil prices, bank failures and inflation (Stephey, 2008). However you spin it, Bretton Woods established the United States...
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...How should the banking system be regulated? • The post Bretton woods era was marked with political disputes by developed countries and new policy regimes in response to the failures of previous crises. During the Bretton Woods system, capital controls were an instrument to prevent the instability but with the rise of the Euromarkets in the 1960’s capital controls had been reduced and became difficult to enforce effectively. Towards the end of the 1970’s both the UK and US had adopted financial deregulation which encouraged competition between banks and this led to developing countries adopting similar methods. • Since the Bretton Woods era, there has been more integration between economies and this has led to a more globalised world. Global capital mobility along with global lending has increased, and advances in technology have allowed financial innovation that tested state boundaries encouraged more globalization, not less. Trade continued to expand as it had during the Bretton Woods era, but after Bretton Woods there was a shift towards more neoliberal policies which favoured liberalisation and the openness of markets. • Many of the debates that took place after the financial crisis were concerned with an increasing role of regulation around the world with the help of governments. Firstly, after the financial crisis it was clear to see that the goal of financial stability had to be included in monetary policy but what tool could be used to do this effectively? Interest...
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...the 1970's the unsustainability if the Bretton Woods System became increasingly apparent. Evaluate the factors which led to the collapse of the Bretton Woods System and its impact on the subsequent evolution of the international political economy. With World War II rapidly coming toward an end, there was a global fear. A fear that the world was going to return to the economic protectionism that led the world economy to the brink of collapse in the 1930's. A new global political system needed to be formed, with the Allies, most importantly America, leading the way. As Robert Skidelsky(2004) puts it in his biography of John Maynard Keynes the U.S wanted to 'destroy Britain’s pre-war financial and trading system, based on the sterling area and imperial preference' and create a new monetary order to regulate the worlds economy. So on the 1st of July 1944, 44 Allied nations met for the Bretton Woods conference, during which the new neo-liberal policies were formed in order to open markets and lower trade barriers and movement of capital. The bretton woods system had three main features- fixed exchange rates(”par values” agreed with the international monetary fund and changed only in consultation with it); currencies that were freely converitble into each other or into gold; and freedom from exchange restrictions, at least on current payments. Controls on capital movements were permitted (Garritsen de Vrie, M. n.d) The Bretton Woods system had two governing bodies, the IMF which...
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...Bretton Woods Agreement Definition: The Bretton Woods Agreement is the result of a 1944 meeting in Bretton Woods, New Hampshire involving delegates from forty-four countries following World War II. The resulting agreement established a fixed rate exchange system, the International Monterey Fund (IMF) and the World Bank. This also included an exchange rate agreement, also known as the gold exchange standard. (Satterlee, 2009, p.157). Summary: A Bretton Woods for innovation This article by author Stephen Ezell highlights one of the issues overlooked upon the conclusion of the 1994 meeting, policies governing innovation. “We need a new international framework that sets clear parameters for what constitutes fair and unfair innovation competition, creating new institutions (and updating old ones) that maximize innovation” (Ezell, 2011, para. 1). Ezell begins by defining the current policies in play concerning innovation and providing examples. Ezell breaks down countries’ policies into four categories, “Good”, “Bad”, “Ugly” and "Self-destructive". “"Good" innovation policies include increasing investments in scientific research; offering research and development tax credits; welcoming highly skilled immigrants; providing strong science, technology, engineering, and math education; and deploying advanced information and communications technologies” (Ezell, 2011, para. 4). “"Bad" policies are strategies like import substitution industrialization that a country believes will...
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...The Bretton Woods system is commonly understood to refer to the international monetary regime that prevailed from the end of World War II until the early 1970s. Taking its name from the site of the 1944 conference that created the International Monetary Fund (IMF) and World Bank (International Bank for Reconstruction and Development), the Bretton Woods system was history's first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization, the IMF, endowed with limited supranational authority. In practice the initial scheme, as well as its subsequent development and ultimate demise, were directly dependent on the preferences and policies of its most powerful member, the United States. The World Bank and its sister organization, the International Monetary Fund, were created at Bretton Woods New Hampshire in 1944. Together they are referred to as the Bretton Woods Institutions or BWIs. The IMF's original mandate sets forth three main objectives: 1. To promote international monetary cooperation; 2. To facilitate the expansion of international trade; 3. To promote exchange rate stability. The IMF achieves these objectives by advising member countries on their economic policies and by providing conditional assistance to member countries experiencing balance of payments...
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...gold standard contained an automatic mechanism that contributed to de simultaneous achievement of balance-of- payments equilibrium by all countries. The gold standard broke down during the 1930’s as countries engaged in competitive devaluations. The Bretton Woods system of fixed exchange rates was established in 1944. The U.S. dollar was the central currency of this system; the value of every other currency was pegged to its value. Significant exchange rate devaluations were allowed only with the permission of the IMF. The role of the IMF was to maintain order in the international monetary system to avoid a repetition of the competitive devaluations of the 1930s and to control price inflation by imposing monetary discipline on countries. The fixed exchange rate system collapsed in 1937, primarily due to speculative pressure on the dollar following a rise in U.S inflation and a growing U.S. balance-of-trade deficit. Since 1973 the world has operated with a floating exchange rate regime, and exchange rates have become more volatile and far less predictable. Volatile exchange rate movements have helped reopen the debate over the merits of fixed and floating systems The case for a floating exchange rate regime claims that such a system gives countries autonomy regarding their monetary policy and that floating exchange rates facilitate smooth adjustment of trade imbalances. The case for a Fixed exchange rate regime claims that the need to maintain a fixed exchange rate imposes monetary...
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...levels of capability. The danger is that weak nations with extensive resource wealth may be exploited in the short term rather than developing national economies with well trained work forces over the long term • The breakdown of the Bretton Woods system in 1971 led to the collapse of the global system of fixed exchange rates, which had given developing nations flexibility in developing their national economies. - Thus from an ethical standpoint we have not maintained the principles of impartiality in global economic development since the end of WWII Sustainability is a principle directly relate to “sustainable development,” i.e., using natural resources so as to preserve the overall capacities of natural systems to replenish themselves. In essence we leave nature in the same condition we found it. Sustainability thus implies obligations to future generations. Renewable resources are kept intact. Pollution and other externalities are limited • problems of sustainability and impartiality are related. If current theories of global warming are correct, greenhouse gas emissions contribute to climate change that triggers floods in Mozambique or Bangladesh, causing significant damage to farmland. At the same time the collapse of Bretton Woods opened the door for massive movements of short term capital around the world, usually away from third world economies that most need them. We want to accumulate goods but are we doing this in a sustainable manner? Are we infringing...
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...ISCOR 300 Spring 2014 Tuesday 4:00-6:00pm Exam Study Guide IDs: You should be able to identify major terms, concepts, events, and people. A good ID response requires that you state who or what it is, AND its significance in the context of the course (how, why important? The so what question). Study suggestion: go through the readings and video, lecture, and discussion notes; make an extended list of potential candidates (20-25). Choose 10-15 to concentrate and focus on in relation to what a good ID should be. YOU WILL HAVE A LARGE NUMBER OF IDs TO CHOOSE FROM, 5 out of 10-12. Each ID will be worth 10 points, for a total of 50 points. FOR EXAMPLE, in a class dealing with international security, an ID for Aum Shinrikyo would be as follows: Aum Shinrikyo was an apocalyptic Japanese religious cult that released sarin nerve gas in the Tokyo subway in 1995, killing 12 and injuring over 5,000. The ultimate goal of the cult was to bring about chaos on an international scale culminating in a nuclear war, as a means of ushering in the apocalypse. The 1995 attack was an effort to test methods of dispersing chemical weapons, a step towards achieving that goal. Significance: Aum Shinrikyo was the first non-state actor to successfully carry out a large-scale chemical weapon attack against civilians. The cult illustrates a new face of terrorism, post-modern terrorism. Post-modern terrorism is defined as groups without specific political or sub-national...
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...Abstract This paper shall discuss the Gold Standard, the Bretton Woods System and the European Exchange Rate Mechanism with a view to analysing their respective advantages and disadvantages; along with the circumstances surrounding their emergence and failure. Through this lens the author intends to draw comparisons between the current EMU and the Gold Standard and any implications these similarities have Introduction A prerequisite to any discussion on this topic is an understanding of certain classical and neo-classical analytical frameworks. Therefore section one will briefly present and explain the logic of Hume’s Mechanism and the ‘Impossible Trinity.’ Section Two outlines a chronological history of various exchange rate mechanisms along with their corresponding successes and failures. Section three draws parallels between the Gold Standard and the European Monetary Union and discusses the consequences of these similarities. Section One: Analytical Frameworks Hume’s Mechanism: This theory combines aspects of the purchasing power parity and interest rate parity conditions. It states that as the monetary base (M) increases domestic prices trend upwards. This induces a nation to import more goods than it exports, creating a current account deficit. This deficit gradually causes gold to leave the system, causing prices to revert back to their original levels- producing a balanced current account. This process in the goods markets is far slower than the complimentary...
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...funder to nations that couldn’t provide for themselves anymore or were in some sort of financial trouble. Its mission is to help central banks become more stable, to act as banks for those 60 central banks, and to also foster international cooperation in monetary and financial stability. The BIS has also served as a trustee and agent for the European monetary System back when Europe was trying to have a single currency. The BIS has had many purposes throughout its existence, but its main focus has always been to maintain global financial stability. The BIS has had some major accomplishments. One of which is when it came to rescue Mexico in 1982 and Brazil in 1998 in their debt crisis. The BIS has helped many countries in time of need. They also helped complete the Marshall Plan. The Marshall Plan was a plan devoted to aid Western Europe after all the destruction caused by World War II. The BIS was able to facilitate the payments for this plan, which resulted in its fast completion in 1951. Another great accomplishment by the BIS is the implementation of the Bretton Woods system in the western world. The Bretton Woods System was...
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...What was the Bretton Woods system? Outline its main pillars and discuss to what extent, if any, its architecture led to both post-war stability and prosperity in the developed world throughout capitalism’s ‘golden age’ “50 Years is Enough” In the final months of the Second world war, an architecture of stability for the international economy emerged. The United States and Britain, having already committed to each other with the signing of Mutual Aid Agreement(1941)1, vied to create a multilateral economic system to replace the international gold standard and its structural rigidity. The Bretton Woods agreement of 1944 established a dollar-gold standard of fixed, but adjustable, exchange rates of $US35 an ounce2. Which, according to Milton Friedman, “carried within it the seeds of its own destruction”3. The Institutions of neo-liberal global economic governance4, were formed; International Monetary Fund, & International Bank for Reconstruction and Development. The Twin Pillars of post-war order5, an “economic super-government”6 essentially adopting both; U.S. Inflation rates.7 and US political policies8. There has been no country in history that has emerged from war into such happy economic circumstances as the United States in 19459. General Maximum Price Regulation(1942) was signed after the attack on Pearl Harbour, controlling most prices beneath a price ceiling until '46, and imposing penalties on violations. In addition to a comprehensive ration system. In order to maximise...
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...T H E I N T E R N AT I O N A L M O N E TA R Y S Y S T E M AGENDA • Definition • History • Fixed Vs. Floating • Coalitions • Roadmap • Q&A DEFINITION • Sets of internationally agreed rules, conventions and supporting institutions, that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. H I S T O R Y O F T H E M O N E TA R Y S Y S T E M Gold Standard 1870 1944 Nixon Shock 1971 1976 Bretton Woods Jamaica Agreement T H E G O L D S TA N D A R D T H E G O L D S TA N D A R D • When International trade was limited in volume, payment for goods purchased from another country was made in gold or silver. • As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed. T H E G O L D S TA N D A R D • The solution adopted was to arrange for payment in paper currency and for governments to agree to convert the paper currency into gold on demand at a fixed rate. = T H E G O L D S TA N D A R D • 1880: Most of the world’s trading nations including Great Britain, Germany, Japan, and USA adopted the Gold Standard. • Given the Gold Standard, the value of any currency in units of any other currency was easy to determine. T H E G O L D S TA N D A R D • The Gold Standard acts as an adjustment mechanism, which achieves the Balance-of-Trade Equilibrium...
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