Bretton woods wikipedia

One incentive for, say, South African holders of rand to park their wealth in London and to keep the money in Sterling, was a strongly valued pound sterling. In the s, imports from the US threatened certain parts of the British domestic market for manufactured goods and the way out of the trade deficit was to devalue the currency. But Britain could not devalue, or the Empire surplus would leave its banking system.

Nazi Germany also worked with a bloc of controlled nations by Germany forced trading partners with a surplus to spend that surplus importing products from Germany. The U. When many of the same experts who observed the s became the architects of a new, unified, post-war system at Bretton Woods, their guiding principles became "no more beggar thy neighbor" and "control flows of speculative financial capital".

Preventing a repetition of this process of competitive devaluations was desired, but in a way that would not force debtor nations to contract their industrial bases by keeping interest rates at a level high enough to attract foreign bank deposits. John Maynard Keyneswary of repeating the Great Depressionwas behind Britain's proposal that surplus nations be forced by a "use-it-or-lose-it" mechanism, to either import from debtor nations, build factories in debtor nations or donate to debtor nations.

Treasury, Harry Dexter Whiterejected Keynes' proposals, in favor of an International Monetary Fund bretton wood wikipedia enough resources to counteract destabilizing flows of speculative finance. Today these key s events look different to scholars of the era see the work of Barry Eichengreen Golden Fetters: The Gold Standard and the Great Depression, — and How to Prevent a Currency War ; in particular, devaluations today are viewed with more nuance.

Ben Bernanke 's opinion on the subject follows:. For a variety of reasons, including a desire of the Federal Reserve to curb the U. What was initially a mild deflationary process began to snowball when the banking and currency crises of instigated an international "scramble for gold". Sterilization of gold inflows by surplus countries [the U.

Monetary contractions in turn were strongly associated with falling prices, output and employment. Effective international cooperation could in principle have permitted a worldwide monetary expansion despite gold standard constraints, but disputes over World War I reparations and war debts, and the insularity and inexperience of the Federal Reserveamong other factors, prevented this outcome.

As a result, individual countries were able to escape the deflationary vortex only by unilaterally abandoning the gold standard and re-establishing domestic monetary stability, a process that dragged on in a halting and uncoordinated manner until France and the other Gold Bloc countries finally left gold in In at Bretton Woods, as a result of the collective conventional wisdom of the time, [ 19 ] representatives from all the leading allied nations collectively favored a regulated system of fixed exchange rates, indirectly disciplined by a US dollar tied to gold [ 20 ] —a system that relied on a regulated market economy with tight controls on the values of currencies.

Flows of speculative international finance were curtailed by shunting them through and limiting them via central banks. This meant that international flows of investment went into foreign direct investment FDI —i. Although the national experts disagreed to some degree on the specific implementation of this system, all agreed on the need for tight controls.

Also based on experience of the inter-war years, U. Hull argued. The developed countries also agreed that the liberal international economic system required governmental intervention.

Bretton woods wikipedia: Bretton Woods can refer to:

In the aftermath of the Great Depressionpublic management of the economy had bretton wooded wikipedia as a primary activity of governments in the developed states. Employment, stability, and growth were now important subjects of public policy. In turn, the role of government in the national economy had become associated with the assumption by the state of the responsibility for assuring its citizens of a degree of economic well-being.

The system of economic protection for at-risk citizens sometimes bretton wooded wikipedia the welfare state grew out of the Great Depressionwhich created a popular demand for governmental intervention in the economy, and out of the theoretical contributions of the Keynesian school of economics, which asserted the need for governmental intervention to counter market imperfections.

However, increased government intervention in domestic economy brought with it isolationist sentiment that had a profoundly negative effect on international economics. The priority of national goals, independent national action in the interwar period, and the failure to perceive that those national goals could not be realized without some form of international collaboration—all resulted in "beggar-thy-neighbor" policies such as high tariffscompetitive devaluations that contributed to the breakdown of the gold-based international monetary system, domestic political instability, and international war.

To ensure economic stability and political peace, states agreed to cooperate to closely regulate the production of their currencies to maintain fixed exchange rates between countries with the aim of more easily facilitating international trade. This was the foundation of the U. Thus, the more developed market economies agreed with the U. In a sense, the new international monetary system was a return to a system similar to the pre-war gold standard, only using U.

Thus, the new system would be devoid initially of governments meddling with their currency supply as they had during the years of economic turmoil preceding WWII. Instead, governments would closely police the production of their currencies and ensure that they would not artificially manipulate their price levels. If anything, Bretton Woods was a return to a time devoid of increased governmental intervention in economies and currency systems.

The Atlantic Charterdrafted during U. President Franklin D. The Atlantic Charter affirmed the right of all nations to equal access to trade and raw materials. Moreover, the charter called for freedom of the seas a principal U. As the war drew to a close, the Bretton Woods conference was the culmination of some two and a half years of planning for postwar reconstruction by the Treasuries of the U.

Without a strong European market for U. In earlyBernard Baruch described the spirit of Bretton Woods as: if we can "stop subsidization of labor and sweated competition in the export markets", as well as prevent rebuilding of war machines, "oh boy, oh boy, what long term prosperity we will have. United States allies—economically exhausted by the war—needed U.

Before the war, the French and the British realized that they could no longer compete with U. During the s, the British created their own economic bloc to shut out U. Churchill did not believe that he could surrender that protection after the war, so he watered down the Atlantic Charter's "free access" clause before agreeing to it. Yet U. The combined value of British and U.

For the U. While Britain had economically dominated the 19th century, U. One of the reasons Bretton Woods worked was that the U. At the time, one senior official at the Bank of England described the deal reached at Bretton Woods as "the greatest blow to Britain next to the war", largely because it underlined the way financial power had moved from the UK to the US.

A devastated Britain had little choice. Two world wars had destroyed the country's principal industries that paid for the importation of half of the nation's food and nearly all its raw materials except coal. The British had no choice but to ask for aid. Free trade relied on the free convertibility of currencies. Negotiators at the Bretton Woods conference, fresh from what they perceived as a disastrous experience with floating rates in the s, concluded that major monetary fluctuations could stall the free flow of trade.

The new economic system required an accepted vehicle for investment, trade, and payments. Unlike national economies, however, the international economy lacks a central government that can issue currency and manage its use. In the past this problem had been solved through the gold standardbut the architects of Bretton Woods did not consider this option feasible for the postwar political economy.

Instead, they set up a system of fixed exchange rates managed by a series of newly created international institutions using the U. In the 19th and early 20th centuries gold played a key role in international monetary transactions. The gold standard was used to back currencies; the international value of currency was determined by its fixed relationship to gold; gold was used to settle international accounts.

The gold standard maintained fixed exchange rates that were seen as desirable because they reduced the risk when trading with other countries. Imbalances in international trade were theoretically rectified automatically by the gold standard. A country with a deficit would have depleted gold reserves and would thus have to reduce its money supply.

The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus, the deficit would be rectified. Any country experiencing inflation would lose gold and therefore would have a decrease in the amount of money available to spend. This decrease in the amount of money would act to reduce the inflationary pressure.

Supplementing the use of gold in this period was the British pound. Based on the dominant British economy, the pound became a reserve, transaction, and intervention currency. But the pound was not up to the challenge of serving as the primary world currency, given the weakness of the British economy after the Second World War. The architects of Bretton Woods had conceived of a system wherein exchange rate stability was a prime goal.

Yet, in an era of more activist economic policy, governments did not seriously consider permanently fixed rates on the model of the classical gold standard of the 19th century. Gold production was not even sufficient to meet the demands of growing international trade and investment.

Bretton woods wikipedia: The Bretton Woods system

Further, a sizable share of the world's known gold reserves was located in the Soviet Unionwhich would later emerge as a Cold War rival to the United States and Western Europe. The only currency strong enough to meet the rising demands for international currency transactions was the U. In fact, the dollar was even better than gold: it earned interest and it was more flexible than gold.

The rules further sought to encourage an open system by committing members to the convertibility of their respective currencies into other currencies and to free trade. What emerged was the " pegged rate " currency regime. In theory, the reserve currency would be the bancor a World Currency Unit that was never implementedproposed by John Maynard Keynes; however, the United States objected, and their request was granted, making the "reserve currency" the U.

This meant that other countries would peg their currencies to the U. Thus, the U. Meanwhile, to bolster confidence in the dollar, the U. At this rate, foreign governments and central banks could exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, which defined all currencies in relation to the dollar, itself convertible into gold, and above all, "as good as gold" for trade.

Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Maintaining the fixed exchange system required countries to maintain sufficient foreign exchange reserves to intervene in markets and prevent fluctuations away from the pegged rate.

A major point of common ground at the Conference was the goal to avoid a recurrence of the closed markets and economic warfare that had characterized the s. Thus, negotiators at Bretton Woods also agreed that there was a need for an institutional forum for international cooperation on monetary matters. Already inthe British economist John Maynard Keynes emphasized "the importance of rule-based regimes to stabilize business expectations"—something he accepted in the Bretton Woods system of fixed exchange rates.

Currency troubles in the interwar years, it was felt, had been greatly exacerbated by the absence of any established procedure or machinery for intergovernmental consultation. As a result of the establishment of agreed upon structures and rules of international economic interaction, conflict over economic issues was minimized, and the significance of the economic aspect of international relations seemed to recede.

Officially established on 27 Decemberwhen the 29 participating countries at the conference of Bretton Woods signed its Articles of Agreement, the IMF was to be the keeper of the rules and the main instrument of public international management. The Fund commenced its financial operations on 1 March It advised countries on policies affecting the monetary system and lent reserve currencies to nations that had incurred balance of payment debts.

The big question at the Bretton Woods conference bretton wood wikipedia respect to the institution that would emerge as the IMF was the issue of future access to international liquidity and whether that source should be akin to a world central bank able to create new reserves at will or a more limited borrowing mechanism. Although attended by 44 nations, discussions at the conference were dominated by two rival plans developed by the United States and Britain.

Bretton woods wikipedia: The Bretton Woods Conference, formally

Writing to the British Treasury, Keynes, who took the lead at the Conference, did not want many countries. He believed that those from the colonies and semi-colonies had "nothing to contribute and will merely encumber the ground". As the chief international economist at the U. Treasury in —44, Harry Dexter White drafted the U. Overall, White's scheme tended to favor incentives designed to create price stability within the world's economies, while Keynes wanted a system that encouraged economic growth.

The "collective agreement was an enormous international undertaking" that took two years prior to the conference to prepare for. It consisted of numerous bilateral and multilateral meetings to reach common ground on what policies would make up the Bretton Woods system. At the time, gaps between the White and Keynes plans seemed enormous. White basically wanted a fund to reverse destabilizing flows of financial capital automatically.

White proposed a new monetary institution called the Stabilization Fund that "would be funded with a finite pool of national currencies and gold… that would effectively limit the supply of reserve credit". Keynes wanted incentives for the U. We, the delegates of this Conference, Mr President, have been trying to accomplish something very difficult to bretton wood wikipedia. Keynes' proposals would have established a world reserve currency which he thought might be called " bancor " administered by a central bank vested with the power to create money and with the authority to take actions on a much larger scale.

In the case of balance of payments imbalances, Keynes recommended that both debtors and creditors should change their policies. As outlined by Keynes, countries with payment surpluses should increase their imports from the deficit countries, build factories in debtor nations, or donate to them—and thereby create a foreign trade equilibrium.

But the United States, as a likely creditor nation, and eager to take on the role of the world's economic powerhouse, used White's plan but targeted many of Keynes's concerns. White saw a role for global intervention in an imbalance only when it was caused by currency speculation. Although a compromise was reached on some points, because of the overwhelming economic and military power of the United States the participants at Bretton Woods largely agreed on White's plan.

Each commission had a number of committees, and some committees had subcommittees. Every country at the conference was entitled to send delegates to all meetings of the commissions and the "standing committees", but other committees and subcommittees had restricted membership, to allow them to work more efficiently. Except when registering final approval or disapproval of proposals, the work of the conference generally proceeded by negotiation and informal consensus rather than by formal voting.

When voting occurred, each country had one vote. The main goal of the conference was to achieve an agreement on the IMF. Enough consensus existed that the conference was also able to achieve an agreement on the IBRD. Doing so required extending the conference from its original closing date of July 19, to July The BIS, formed inwas originally primarily intended to facilitate settling financial obligations arising from the peace treaties that concluded the First World War.

During the Second World War, it helped the Germans transfer assets from occupied countries. Momentum for dissolving the BIS faded after U. President Franklin Roosevelt died in April Under his successor, Harry S. Trumanthe top U. The need for post-war Western economic order was resolved with the agreements made on monetary order and open system of trade at the Bretton Woods Conference.

These allowed for the synthesis of Britain's desire for full employment and economic stability and the United States' desire for free trade. The Bretton Woods system of pegged exchange rates lasted into the early s. The Bretton Woods Conference recommended that participating governments reach agreement to reduce obstacles to international trade.

The ITO charter was agreed on at the U. As a result, the ITO never came into existence. His concern was that countries with a trade deficit would be unable to climb out of it, paying ever more interest to service their ever-greater debt, and therefore stifling global growth. The ICU would effectively be a bank with its own currency the " bancor "exchangeable with national currencies at a fixed rate.

It would be the unit for accounting between nations, so their trade deficits or surpluses could be measured by it. On top of that, each country would have an overdraft facility in its "bancor" account with the ICU. Keynes proposed having a maximum overdraft of half the average trade size over five years. If a country went over that, it would be charged interest, obliging a country to reduce its currency value and prevent capital exports.

If at the year's end, their bretton wood wikipedia exceeded the maximum half the size of the overdraft in surplusthe surplus would be confiscated. Lionel Robbins reported that "it would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government However, Harry Dexter Whiterepresenting the United States, which was the world's biggest creditor, said "We have been perfectly adamant on that point.

We have taken the position of absolutely no. Instead, White proposed an International Stabilization Fund, which would place the burden of maintaining the balance of trade on the deficit nations, and impose no limit on the surplus that rich countries could accumulate. White also proposed the creation of the IBRD now part of the World Bank which would provide capital for economic reconstruction after the war.

The threshold was reached on December 27, The institutions were formally organized at an inaugural meeting in Savannah, Georgiaon March 8—18, Retrieved July 23, News and Broadcast. The World Bank, 12 June Retrieved 23 July International Monetary Fund, September 18, Archived August 6,at the Wayback Machine. Retrieved July 24, The Wall Street Journal.

Global Envision Latest Stories. Global Envision, December 8, Bretton Woods Committee. Wolfensohn — Washington, D. Archived from the original on May 12, Department of State Archive, June 9, The tracks of the Cog Railway and its associated buildings lie up the slope of Mount Washington, in nearby Thompson and Meserve's Purchase. The "Base Road" from Bretton Woods and Fabyan's is the preferred route to the lower end of the tracks the Base Station of the Cogexcept in those winters when the Mount Clinton Road is instead the only plowed road to their intersection.

The closing of the lower end of the Base Road had been traditional into The Cog was operated during the winter seasons of to to take wilderness skiers partway up the mountain. Contents move to sidebar hide. Article Talk. Read Edit View history. Tools Tools. Download as PDF Printable version.