Essays on Bretton Woods System of Controlling the Exchange Rates Report

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The paper "Bretton Woods System of Controlling the Exchange Rates" is a wonderful example of a report on macro and microeconomics. Bretton Woods Agreement was formed as a reaction to deterioration in the finance market after the first world war in 1944 as countries sought to restructure currency and international finance relationships (Eichengreen, 2007, p. 34). The agreement was formulated to respond to the collapsed the gold-exchange standard error that collapsed in the 1930s and preceded the Internationally Monetary Fund system. To begin with, the establishment of the Bretton Woods System was aimed at stabilizing the exchange rate hence ensuring reconstruction and growth and avoiding devaluation of currency due to competition experiences in the 1930s.

Secondly, the system was created so as to prevent the repetition of ‘ beggar-thy-neighbor’ policies which existed in interwar gold-exchange standards latter stages whereby countries experienced a deterioration of the exchange rates and economic instability (Kenen, 1994, p. 45). Bretton Woods System architects sought to combine the gold-standard rule’ s nominal stability with the policy maker’ s freedom and flexibility over the floating system. Though John Maynard Keynes was the main negotiator, the agreed system was not completely coherent with his initial plans and those of hi-core architect Harry Dexter White (Levi, 2009, p. 145).

This regime was characterized by fixed but adjustable exchange rates rather than the rigid exchange rates which characterized the gold-exchange standard error in mid-1920s. The architects of the Bretton Woods System intended to develop a system where all currencies were equal. However, the adopted system was different in that the U. S. dollar became the center of the system as it played a pivotal role against which other currencies were to measured. The Bretton Woods System can be described as having been asymmetric since the U. S.

pursued its domestic objectives freely while other countries had to forego their domestic targets in order to ensure that they achieved and maintained foreign-reserve flows stability (in this regard, a reserve of the U. S. dollar) (Hall et al, 2009, p. 79).


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