Breton Woods System: A Retrospective



Breton Woods System: A Retrospective

Question 1: Basic Purpose of Breton Woods System

Bretons wood system came into existed in the 20th century. It was set up to ensure that there are some financial regulations as commercial compliance among the major industrial states. It can be termed as one of the first example during which there was a well regularized monetary system to ensure that monetary transactions and relations among the nation could governed and looked at. There were efforts during the Second World War to ensure that the international economic system that was severely dented at that point of time could be rebuilt and re invented. To ensure that it happens, about 703 delegates from all the allied nations that were about 44 in the number would gather at Breton Woods. It is located in the New Hampshire in the United States. The motive was to gather for the United National Conference and financial and monetary measures were the point of agenda. This conference is also known as the Breton Woods Conference (Bibow, 2006).

At the conference, there were rules and institutions that were set up to ensure that there is some regulation in the international monetary system. IMF (International Monetary Fund) as well as IBRD was set up at that point of time, IBRD stands for International Banking and Reconstruction and Development. IBRD is the part of the World Bank these days. These organizations started their full functions in 1945 as almost all the members' countries had ratified the agreement. One of the main features of the Breton Wood system was to ensure that all the nations that are the part of the system have to adopt a monetary policy that can take control of the exchange rate. At that time, one of the biggest issues that were faced by the global economy was that there were imbalances in the payments. So correcting that was also one of the objectives of the Breton wood system.

Arguments Made by United States

At that point of time, United States was one of the fastest growing economies of the world and almost 50 % of the global manufacturing capacity was taken care by United States. Most of the gold reserves of the world were also held by the United States (Bibow, 2006). International leaders when they witnessed that, they tie the value of all the global currencies to the United States. At the same time, the Gold reserves that were at the disposal of the United States were converted into Gold as per the value of $ 35 per ounce. FED in United States was given this responsibility that it must take care of the maintenance of the fixed exchange rates as far as their respective currency and dollar is concerned. United States ensured that by intervening in the foreign exchange market, they could take control of the exchange rate and maintain some stability in the financial market (Bordo & Eichengreen, 2007).

Concerns of United Kingdom

At that point of time, ...