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The Bretton Woods System Explained
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Fixed exchange rate system
Exchange rates were pegged to the US Dollar, which was then convertible to gold at a fixed rate, stabilizing currency values and promoting international trade.
Creation of the International Monetary Fund (IMF)
The IMF was established to monitor exchange rates and lend reserve currencies to nations with balance-of-payments deficits.
Creation of the International Bank for Reconstruction and Development (IBRD)
The IBRD, now part of the World Bank Group, was created to provide loans for the reconstruction of war-torn Europe and for development projects in poorer nations.
Gold Standard
Currencies were backed by gold, with the US Dollar as the central reserve currency, which contributed to the stability of the international monetary system.
Adjustable peg system
While exchange rates were fixed, they could be adjusted under fundamental disequilibrium, allowing for flexibility in response to economic conditions.
Dollar Shortage
In the initial post-war years, a scarcity of US Dollars in other countries led to limitations on currency convertibility and influenced the Marshall Plan for US aid.
Non-dollar currencies were not convertible
Initially, currencies were only convertible into US Dollars and not each other, which established the Dollar's central role in international trade.
Bretton Woods Conference
The conference held in 1944 laid down the foundation for the postwar global economic order and resulted in the creation of the IMF and the IBRD.
End of the Bretton Woods System
The system effectively ended in 1971 when President Nixon suspended the gold convertibility of the US Dollar, leading to a transition to floating exchange rates.
Special Drawing Rights (SDR)
Introduced by the IMF in 1969 as a supplementary international reserve asset, with a value based on a basket of major currencies.
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