Principles of the Bretton Woods System
Representatives of the major players in world trade met in 1944 at the site of Bretton Woods in the United StatesIn this meeting it was decided to create a new system of world monetary relations, called the Bretton Woods system. At this meeting it was decided to create a new system of world monetary relations, called the Bretton Woods system, as well as the creation of International Monetary Fund и International Bank for Reconstruction and Development.
The basic principles of Bretton Woods
- Education International Monetary Fund. The purpose of the fund is to lend to countries whose currencies are in difficulty and on condition that the country pursues a certain economic policy.
- American dollar и British pound became reserve currencies. Later, the dollar became the main reserve currency in the world.
- The member countries of the fund fix the rates of their currencies to the dollar, the fluctuations should not exceed one percent of parity in one direction or the other. Also, the U.S. undertakes to buy and sell gold to the central banks of the Fund's member countries at a fixed price of $35 per ounce.
- Countries can change their currencies only after the approval of the fund and only in case of a mile-high imbalance in the balance of payments.
- In order to maintain parity rates, central banks of countries must hold dollar reserves for interventions.
- All members of the fund must contribute funds for the operation of the fund.
By the early 1970s, U.S. gold reserves had rapidly declined, while Europe, by contrast, had several times more gold than the United States. The resulting liquidity problems in gold and declining confidence in the dollar worsened the situation of the current system. The Bretton Woods system had ceased to exist due to its ineffectiveness March 16, 1973.