Question

What is meant by the Bretton Woods Agreement?

Answer 1

Hint: The Bretton Woods System was the first system that was used to control the value of money between different countries.

Complete answer: The Bretton Woods System established monetary relations between the United States, Canada, Australia and Japan after the 1944 Bretton Woods Agreement took place. The Bretton Woods Agreement was created in a 1944 conference of all the World War Ⅱ allied countries. It took place in Bretton Woods, New Hampshire. The agreement established a new global monetary system. It replaced the gold standard with the U.S.dollar as the global currency. After the agreement was signed, America was the only country which can print dollars. The new agreement made America establish itself as the dominant power in the world economy.
The main feature of the system was an obligation for each country to adopt a monetary policy that maintained its exchange rates within 1 per cent by tying its currency to gold and the ability of the International Monetary Fund to bridge the imbalance of the payments. There was a need to address the lack of cooperation that existed among the countries and to stop the devaluation of the currencies as well.
The Bretton Woods System also created two important organisations :
1. The International Monetary Fund(IMF)
2. World Bank
While the Bretton Woods System came to an end in the 1970s, both the IMF and World Bank have remained strong pillars for the exchange of international currencies.
In 1971 the U.S. gold supply was no longer adequate to fulfil dollars in circulation, so President Richard M Nixon ordered a temporary suspension of dollar’s exchange to gold. By 1973 the system collapsed countries were free to choose any exchange arrangement for their currency.

Note: The Bretton Woods Agreement remains an important event in world financial history. The two institutions it created: The IMF and World Bank played an important role in helping to rebuild Europe in the aftermath of the World WarⅡ