Dec 19

Under The Bretton Woods Agreement

The IMF has attempted to provide for exchange rate adjustments from time to time (a change in the face value of a member) by an international agreement. Member States have been allowed to adjust their exchange rates by 1%. This trend has been to restore the balance of trade by increasing exports and reducing imports. This would only be permissible if there was a fundamental imbalance. A depreciation of a country`s money was described as a devaluation, while an increase in the value of the country`s money was described as an appreciation. In the 1920s, international flows of speculative financial capital increased, causing extreme balance-of-payments situations in various European countries and the United States. [5] In the 1930s, global markets never broke down barriers and restrictions on the volume of international trade and investment – barriers built without plan, motivated and imposed at the national level. The various national policies, which are anarchic and often autarcic and neo-mercantilist – often inconsequential – that emerged during the first half of the decade, have worked inconsistently and self-destructively to promote domestic substitution of imports, to increase domestic exports, to divert foreign investment and trade flows and even to directly prevent certain categories of cross-border trade and investment. Global central bankers tried to deal with the situation by meeting, but their understanding of the situation and difficulties in international communication hampered their capacity. [6] The lesson was that it was not enough to have only responsible and hard-working central bankers. The Bretton Woods Agreement is one of those turning points in the development of modern financial systems, which established the dollar as the standard currency for world trade after World War II.

While the Bretton Woods system was demanting during the Nixon administration, the financial institutions created by the Agreement – the International Monetary Fund and the World Bank – remain part of the finances of the 21st century. The Bretton Woods system was put in place as a more stable replacement for the gold standard under which all currencies were converted to gold.

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