Bretton Woods system: description and principles of the monetary system

Representatives of the main participants in world trade met in 1944 at the location of Bretton Woods in the USA, in order to coordinate the future structure of the world financial system. At this meeting, it was decided to create a new system of world monetary relations, called the Bretton Woods, as well as the creation International Monetary Fund (IMF) and International Bank for Reconstruction and Development

Basic principles of the Bretton Woods system

  • Education International Monetary Fund… The purpose of the fund is to issue loans to countries whose currencies are experiencing difficulties and subject to the country’s specific economic policy.
  • The US dollar and British pound became reserve currencies. Later, the dollar became the main reserve currency in the world.
  • Countries that are members of the fund fix the rates of their currencies against the dollar, fluctuations in rates should not exceed one percent of parity in one direction or the other. Also, the United States undertakes to buy and sell gold to the central banks of the countries participating in the fund at a fixed price of $ 35 per ounce.
  • Countries can change the rates of their currencies only after the approval of the fund and only in the case of a mile imbalance in the balance of payments.
  • To maintain parity rates, central banks of countries must have dollar reserves for intervention.
  • All members of the foundation must contribute funds for the functioning of the foundation.

By the beginning of the 70s, the US gold reserves were rapidly decreasing, while European countries, on the contrary, had several times more gold than the United States of America. The emerging problems with gold liquidity and a decrease in confidence in the dollar worsened the position of the current system. Bretton Woods system ceased to exist due to its incapacity March 16, 1973

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