Bretton Woods System Trivia Quiz
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Delegates formed a new international monetary system of forty-four countries in Bretton Woods, New Hampshire, in July 1944. Delegates at the conference agreed to create the International Monetary Fund and what would become known as the World Bank Group. The currency conversion system that emerged from Bretton Woods continued until 1971.
Established a New International Monetary System
The United Nations Monetary and Financial Conference was held in July 1944 at Mount Washington Hotel in Bretton Woods, New Hampshire, where delegates from forty-four countries established a new international monetary system called the Bretton Woods System. These countries saw an opportunity for a new global order after World War II that would draw on the lessons of previous gold standards and the experience of the Great Depression and provide for postwar reconstruction. It was an unprecedented collaborative effort for nations that had been erecting barriers between their economies for more than a decade.
The Goals of The New Bretton Woods System
Those at Bretton Woods envisioned an international monetary system that would ensure exchange rate stability, prevent competitive devaluations of currencies, and promote economic growth. Although all the participants agreed on the goals of the new system, their plans for its implementation differed. Reaching a collective agreement was a formidable international task. Preparations began more than two years before the conference, and financial experts held countless bilateral and multilateral meetings to develop a common approach.
While the primary responsibility for international economic policy rests with the US Treasury, the Federal Reserve has been involved by advising and advising on the new system. The primary designers of the new system were John Maynard Keynes, an adviser to the British Treasury. and Harry Dexter White, chief international economist at the Treasury.
White’s plan for a new establishment had limited powers and resources. It reflected fears that Keynes envisioned much of the clearing union’s financial resources would be used to purchase American goods, resulting in the United States owning most of the banks. Harry Dexter White proposed a new monetary institution called the Stabilization Fund. Instead of issuing a new currency, it will be funded with a limited set of national currencies and $5 million in gold, which will effectively limit the supply of reserve credit.
Creation of Two New Institutions
The 730 delegates at Bretton Woods approved the creation of two new institutions. The International Monetary Fund (IMF) will monitor exchange rates and lend reserve currencies to countries with a balance of payments deficit. The International Bank for Reconstruction and Development, now known as the World Bank Group, was responsible for providing financial assistance for post-World War II reconstruction and economic development for less developed countries.
The International Monetary Fund
The International Monetary Fund formally came into existence in December 1945, when its first 29 member states signed its Articles of Agreement. Countries agreed to keep their currencies fixed but adjustable (by 1%) to the dollar, and the dollar was pegged to gold at $35 per ounce. To this day, when a country joins the IMF, it receives a quota based on its relative position in the world economy, which determines the amount of its contribution to the Fund.
In 1958, the Bretton Woods system became fully functional as the currencies became convertible. Countries settled international balances in dollars, and US dollars were convertible into gold at a fixed exchange rate of $35 per ounce. The United States was responsible for keeping the price of gold constant and had to adjust the dollar supply to maintain confidence in the convertibility of gold in the future.
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