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The Bretton Woods System

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In order to reply to the question, it is essential to spotlight the meaning and consequences 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 …show more content…
Countries settled international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility. The Bretton Woods system was in place until persistent US balance-of-payments deficits led to foreign-held dollars exceeding the US gold stock, implying that the United States could not fulfill its obligation to redeem dollars for gold at the official …show more content…
How United States has abused its position in the world monetary system after The Bretton Woods system?

In 1973, Nixon unhooked the value of the dollar from gold altogether. Without price controls, gold quickly shot up to $120 per ounce in the free market. The Bretton Woods system was over. (Source: “Fuss Over Dollar Devaluation,” Time, October 4, 1971.) . One could say that the UNITED STATES abused its right of seigniorage to pay for the Vietnam war.
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. (TIME Tuesday, Oct. 21, 2008).
Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union.

In 1973, with the adoption of the new rule that each country could choose its own currency arrangement, the Bretton Woods System was officially

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