The paper "The Most Important Features of the Bretton Woods Agreement" is a great example of a macro and microeconomics case study. During the summer of 1944, World War II (WWII) was still ongoing. The same summer delegates from a total of 44 countries met in Bretton Woods, a rural area in the New Hampshire, to lay down the foundation for a new international financial system. The meeting was the result of the determination of President Franklin D Roosevelt of the US and Winston Churchill, the UK Prime Minister, to see post-war prosperity based on economic cooperation and avoiding the 1930s economic conflicts and tensions between countries, which they believed fanned the drift to the war (Schifferes, 2008).
During the meeting, President Roosevelt (quoted in Schifferes, 2008) said, “ The economic health of every country is a proper matter of concern to all its neighbours, near and distant. ” But largely, it can be said that the conference was part of the US’ s plan to create and lead a new world order that would rest upon the rule of law, and which also facilitated and enhanced the creation of the United Nations, as well as strengthening other international organization (Schifferes, 2008; Wiggin, 2006). By the 1970s, however, the US dollar was under much pressure from many factors, including the heavy cost of the Vietnam War as well as the growing trade deficit.
President Nixon of the US unilaterally abandoned the gold standard and devalued the US currency, the dollar, in 1971. This move would only be ratified later in the year by another meeting dubbed the Smithsonian Agreement. This marked the beginning of the end for the Brent Woods system as some of its key aspects began to lose favor.
For instance, fixed exchange rates were abandoned for floating rates, which meant that the value of major currencies would now be determined by market trading. Attempts to put in place a new Bretton Woods deal on currencies failed. Eventually, the Bretton Woods system broke down (Cohen, 2002; Wiggin, 2006; Iozzo & Mosconi, 2006). The purpose of this paper is to take a closer look at the key features that the Bretton Woods Agreement set to champion, the reasons that led to the breakdown of the BWs system and what economic world order has since taken over from that vacuum left. The important features of the Bretton Woods System As already mentioned above, the BW system was meant as a strategy for the postwar reconstruction of the world monetary space.
The conference was dominated by two key approaches to the postwar plan led by Harry Dexter White from the US treasury on one hand and John Maynard Keynes from Britain on the other. The ultimate plan was a compromise between the two approaches, but with a notable inclination toward White’ s plan than Keynes’ .
This reflected even further the overwhelming power of the US even as WWII approached its denouement (Lago et al. , 2009; Terborgh, 2003). At the time, there seemed to be a big difference between the plans of White and Keynes, especially regarding ‘ future access to international liquidity’ (Cohen, 2002), the similarities were more notable. In fact, most attending countries agreed on many of the BW proposals. For instance, all of them agreed on the lessons that the interwar monetary chaos had presented and was, therefore, determined to avoid the recurrence of such troubles.
This overall agreement was directly reflected in the IMF Articles of Agreement.
Beams, N. (2001). ‘When the Bretton Woods system collapsed’, World Socialist Web Site: International Committee of the Fourth International (ICFI), 16 August. Retrieved 18th April, 2012, http://www.wsws.org/articles/2001/aug2001/bw- a16.shtml
Blanchard, O. & Milesi-Ferretti, G.M. (2009). ‘Global Imbalances: Past, Present, and Future’, New York: International Monetary Fund
Broz, L. & Frieden, J.A. (2001). The Political Economy of International Monetary Relations. Annual Review of Political Science, vol. 4, pp. 317-43. Retrieved 18th April, 2012, http://weber.ucsd.edu/~jlbroz/pdf_folder/broz_frieden_annualrev.pdf
Cesarano, F. (2003). ‘Defining fundamental disequilibrium: Keynes's unheeded contribution’, Journal of Economic Studies, vol. 30, no. 5, pp. 474 – 492
Chomsky, N. (2008). ‘Exposing the Un-Democratic Face of Capitalism’, Counter Punch, Oct. 10/12. Retrieved 18th April, 2012. http://www.counterpunch.org/2008/10/10/exposing-the-un-democratic-face-of- capitalism/
Clark, P. & Polak, J. (2004). International Liquidity and the Role of the SDR in the International System, IMF Staff Papers, vol. 51, pp. 47-71
Cohen, B.J. (2002). Bretton Woods system, in R.J. Barry Jones (ed.), London: Routledge Encyclopedia of International Political Economy.
Eichengreen, Barry (2007). Global Imbalances and the Lessons of Bretton Woods. Cambridge: MIT Press.
Iozzo, A. & Mosconi, A. (2006). The foundation of a cooperative financial system: a new Bretton Woods to confront the crisis of the international role of the US dollar. London: The Federalist Debate.
Lago, I.M., Duttagupta, R. & Goyal, R. (2009). The Debate on the International Monetary System, IMF Staff Position Note: IMF. Retrieved 18th April, 2012, http://www.imf.org/external/pubs/ft/spn/2009/spn0926.pdf
Mosconi, A. (2010). ‘A World Currency for a World New Deal’, Perspectives on Federalism, vol. 2, no. 2, pp. 239-264, Retrieved 18th April, 2012, http://www.on- federalism.eu/attachments/076_download.pdf
Obstfeld, M. & Kenneth, R. (2010). Global Imbalances and the Financial Crisis: Products of Common Causes. In R. Glick and M. M. Spiegel (eds.), Asia and the Global Financial Crisis. San Francisco: Federal Resreve Bank of San Francisco.
Ocampo, J. (2008). Special Drawing Rights and the Reform of the Global Reserve System, Intergovernmental Group of Twenty-Four. Retrieved 18th April, 2012. http://www.g24.org/TGM/jao0909.pdf
Ocampo, J. (2010). Reforming the International Monetary System, WIDER Annual Lecture 14, Dec. 9. Retrieved 18th April, 2012, http://www.un.org/esa/ffd/economicgovernance/WIDERAnnualLecture.pdf
Schifferes, S. (2008). ‘How Bretton Woods reshaped the world’, BBC News, 14 Nov. http://news.bbc.co.uk/2/hi/7725157.stm
Simpkins, J. (2008). Will Calls for a "New Global Financial Order" Result in a Second Bretton Woods and the End of U.S. Dominance?’ Money Morning, 24 October. Retrieved, 18th April, 2012 http://moneymorning.com/2008/10/24/bretton-woods/
Terborgh, A. (2003). The Post-War Rise of World Trade: Does the Bretton Woods System Deserve Credit? Working Paper No. 78/03. Retrieved 18th April, 2012, http://eprints.lse.ac.uk/22351/1/wp78.pdf
Wiggin, A. (2006). Bretton Woods Agreement. The Daily Reckoning: An Independent Perspective on the Australian and Global Share Markets, Nov. 29. Retrieved 18th April, 2012, http://www.dailyreckoning.com.au/bretton-woods- agreement/2006/11/29/