The paper ' Collapse of the Bretton Woods System and its Subsequent Replacement' is a great example of a Management Literature Review. The Bretton Woods system is a form of the international monetary system developed to guide monetary affairs between global economies. It emanated from the Bretton Woods Agreement that was made at a United Nations Conference on Monetary Policy held from 1st to 22nd July 1944 at Bretton Woods in New Hampshire, U. S. A. That the establishment of the system was a culmination of years of preparation is evident in its comprehensive approach to managing the monetary affairs of economies of member states.
The Second World War and the Great Depression had created a severe and widespread downward spiral in world economies; particularly in European economies. The Bretton Woods Agreement provided an answer to the economic problems resulting from World War II. Its inception was aimed at maintaining long term global peace by creating a stable economic condition through promoting free trade; enabling collaboration in fiscal management and offering short-term help to economies in the event of economic distress.
However, this system collapsed in 1973. Since then, new challenges and realities in international economics and trade relations have created the need for new approaches in managing global monetary relations. This paper examines the key characteristics of the initial Bretton Woods System, reasons for its collapse, and the current situation in international monetary relations. Features of the Bretton Woods System The Bretton Woods System had three main characteristics: fixed exchange rates, free convertibility between currencies, and freedom from exchange restrictions on current payments for the economies of member countries (De Vries, 1996, p.
128; Griffiths, O'Callaghan & Roach, 2008, p. 24). The establishment of a fixed exchange rate based on a gold standard was meant to avoid the disadvantages associated with the earlier regimes. According to Carbaugh (2011, p. 466), before the adoption of this system, global financial systems had separately and haphazardly experimented with both the fixed and floating exchange rates. Both systems, in spite of having obvious advantages in their ideologies, exhibited inherent failure as a result of weaknesses in their mode of operation and approach to public financial management. For instance, the completely fixed rate of exchange regime bears the inherent advantage of simplifying the target in monetary policy; its implementation brings the disadvantage of possible loss of independent monetary policy as well as the danger of exposing the whole economy to the vulnerability of speculative practices.
The overall effects of these two results far outweigh the relative advantage of adopting a completely fixed exchange rate in the economy (King, 2012, p. 133). On the other hand, a floating monetary system bears three important disadvantages in its practice: reckless financial policies by the government, disorderly exchange markets, and price inflation (King, 2012, p.
133; Fernandez, Karacadag & Duttagupta, 2006). These effects on the economy are a result of disruptions in the trade and investment patterns which creates an environment that is conducive for price fluctuations. Despite the fact that floating rates have the advantage of not only allowing governments to set independent monetary and financial policies as well as allowing continuous adjustment in the balance of payments with very limited institutions for implementation, but all these potential advantages are also outweighed by the possibility of disruptions in the trade investment patterns, creation of an environment that encourages speculative activities in the currency market and, more importantly, creating an environment that encourages governments to develop and adopt reckless monetary and financial policies.
These would have a severe effect on the economies if adopted.
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