Essays on The Bretton Woods Agreement Case Study

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The paper "The Bretton Woods Agreement" is a perfect example of a macro & microeconomics case study.   After the end of the world war, the world economic powerhouses led by the US came together in Bretton New Hampshire to establish a new monetary system to replace the Gold standard system which had collapsed during the great depression of the 1930s. The driving idea behind revising the monetary system was the need to enable expansion in money supply through international trade and to revive the world economies that had been devastated by the war.

The United States accounted for more than half of the global economic output and had accumulated most of the world’ s gold. It was therefore logical for other world currencies to be tied to the dollar which was also to be pegged at $35 per ounce. This led to the creation of an adjustable pegged foreign exchange rate system (Triffin, 1957, Bordo, 1993). The new state of the monetary system meant that some readjustments have to be made. The major outcome of the Bretton woods agreement was the creation of the international monetary fund to monitor exchange rates for all the countries and lend reserve currencies to nations experiencing trade deficits due to an imbalance between exports and imports.

There was also the creation of the international bank for reconstruction and development now known as the World Bank. The bank was to provide the struggling and underdeveloped world nations with capital for reconstruction and development (Bordo, 1993, Eichengreen, 2008). The system worked quite well with Germany rising again from wartime destruction. With time though, the US economy had started to suffer negatively from the Bretton woods monetary system.

Inflation was very high in the US economy and the trade deficits had started to grow. The US could no longer allow the dollar to be trading on a fixed rate pegged to the dollar and so it had to abandon the system and allow its currency to freely float in the currency market. This marked the end of the Bretton woods system and assured in the floating system where countries let their currencies float freely against the dollar. The dollar started being used as a reserve currency for many world economies (Meltzer, 1991).

References

Bordo, M.(1993). The Bretton Woods International monetary system: A historical overview, University of Chicago Press, available online at http://www.nber.org/books/bord93-1

Desperes, E., Kindleberger, C. (February 5 1966). The dollar and world liquidity: A minority view, The Economist

Eichengreen, B. (1989). How do fixed exchange rate rigimes work? Evidence from the Gold Standard, Bretton Woods, and the EMS, London, Center for Economic Policy Research

Eichengreen, B. (2004). Global imbalances and the lessons of Bretton woods, NBER Working paper 10497

Eichengreen, B. (2008). Globalising capital: A history of the international monetary system, 2nd edition, Princeton University Press

Hall, S., Hondroyiannis, G., & Tavlas,G. (2009). Bretton-Woods systems,Old and new, and the rotation of exchange rate regimes, working paper #9/15, University of Leicester

Hirsch, F.(1967). Money International .London: Penguin.

Johnson, H. (1965). The world economy at crossroads, Oxford: oxford University Press

Johnson, H. (1973). The international monetary crisis of 1971. Journal of business, vol46, pp. 11-23

McKinnon, R. (1993). The Rules of the Game: International Money in Historical Perspective. Journal of Economic Literature, Vol.22, pp. 1-44

Meltzer, A. (1991). U.S Policy in the Bretton woods era, Federal Reserve Bank of St. Louis Review, Vol 73, pp. 54-83

Mundell, R. Ed. (1969). Monetary problems of the international economy, Chicago: University of Chicago Press

Solomon, R. (1977). The international monetary system: An insyder’s view, New York: Harper and row

Triffin, R. (1957). Europe and the money muddle. New Haven, Yale University Press

Yeager, L. Ed. (1976). International monetary relations: theory, history, and policy, Harper and Row

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