All went well until the Great Depression. After the stock market crash, investors switched to commodities trading. It drove up the price of gold, resulting in people redeeming their dollars for gold. The Bretton Woods system gave nations more flexibility than strict adherence to the gold standard. It also provided less volatility than a currency system with no standard at all.
A member country still retained the ability to alter its currency's value, if needed, to correct a "fundamental disequilibrium" in its current account balance. They'd need a kind of global central bank they could borrow from if they needed to adjust their currency's value and didn't have the funds themselves. Otherwise, they would just slap on trade barriers or raise interest rates.
Instead, they agreed to contribute to a fixed pool of national currencies and gold to be held by the IMF. Each member country of the Bretton Woods system was then entitled to borrow what it needed, within the limits of its contributions. The World Bank, despite its name, was not and isn't the world's central bank. The purpose of the World Bank changed to loaning money to economic development projects in emerging market countries.
In , the United States suffered from massive stagflation—a combination of inflation and recession, which causes unemployment and low economic growth. In response to a dangerous dip in value caused by too much currency in circulation, President Nixon started to deflate the dollar's value in gold.
The devaluation plan backfired. It created a run on the U. In , Nixon unhooked the value of the dollar from gold altogether. The creation of Bretton Woods resulted in countries pegging their currencies to the U.
In turn, the dollar was pegged to the price of gold, and the U. The U. When the dollar ceased to be pegged to the price of gold, it became the monetary standard with other currencies pegging their currencies to it.
Federal Reserve History. Federal Reserve Bank of St. Accessed March 13, Department of State. IMF eLibrary. Bretton Woods Project. University of VIrginia Miller Center. National Mining Association. Actively scan device characteristics for identification. Use precise geolocation data. In , the World Bank Group celebrated the 75th anniversary of the conference; the Archives organized a variety of events that are documented here. Finally, the oral history interviews of former government officials involved in the preparatory work of Bretton Woods or who were delegates at the conference and later became Bank staff, including Irving S.
Friedman , Aron Broches , Ansel F. Luxford , and Daniel Crena de Iongh, offer reflections on the events. This site uses cookies to optimize functionality and give you the best possible experience.
If you continue to navigate this website beyond this page, cookies will be placed on your browser. To learn more about cookies, click here. English History exhibits. Explore History. Bretton Woods and the Birth of the World Bank. Bretton Woods Textual Records. The fund could ration that currency and authorize limited imports from the surplus country. The delegates at Bretton Woods agreed to establish two new institutions. The International Monetary Fund IMF would monitor exchange rates and lend reserve currencies to nations with balance-of-payments deficits.
The International Bank for Reconstruction and Development, now known as the World Bank Group, was responsible for providing financial assistance for the reconstruction after World War II and the economic development of less developed countries. The IMF came into formal existence in December , when its first twenty-nine member countries signed its Articles of Agreement. To this day, when a country joins the IMF, it receives a quota based on its relative position in the world economy, which determines how much it contributes to the fund.
In , the Bretton Woods system became fully functional as currencies became convertible. The United States had the responsibility of keeping the price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.
The Bretton Woods system was in place until persistent US balance-of-payments deficits led to foreign-held dollars exceeding the US gold stock, implying that the United States could not fulfill its obligation to redeem dollars for gold at the official price.
Bernstein, Edward. Bordo, Michael D. Library of Economics and Liberty. Article published Schwartz, " U. Eichengreen, Barry. New York: Oxford University Press, Kenen, Peter. Durlauf and Lawrence E.
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