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Fifty years ago this month, the Allied nations met at Bretton Woods, N.H., to create the postwar monetary system. Bretton Woods re-established international convertibility of the major currencies into gold or gold-convertible dollars.
This article explores the ways in which the classical gold standard established the foundations for a modern international monetary system with its distinctive forms of crisis and regulatory frameworks. The specific nature of this transformation is often overlooked because of a tendency in the literature to compare the gold standard in relation to subsequent monetary systems, such as BrettonWoods. To remedy this historical bias, the classical gold standard is compared with previous monetary systems and it is concluded that it contributed to expand the array of monetary instruments for conducting monetary policy. By progressively subjecting the management of fiduciary money to state control the institutions of the gold standard created a new monetary framework that opened the way for central banking. However, the commitments taken to this effect, such as provisions on the convertibility of banknotes, created new opportunities for speculation. I argue that this new weakness would become the main preoccupation of monetary policy in the 20th century and lay down the foundations for international cooperation and its novel emphasis on monetary stability.
The Bretton Woods Institutions are the World Bank, and the International Monetary Fund (IMF). They were set up at a meeting of 43 countries in Bretton Woods, New Hampshire, USA in July 1944. Their aims were to help rebuild the shattered postwar (world war-II) economy and to promote international economic cooperation. The creation of the World Bank and the IMF came at the end of the Second World War. They wanted to establish a postwar economic order based on notions of consensual decision-making and cooperation in the realm of trade and economic relations. It was felt by leaders of the Allied countries, particularly the US and Britain, that a multilateral framework was needed to overcome the destabilising effects of the previous global economic depression and trade battles. Proponents of the new institutions felt that global economic interaction was necessary to maintain international peace and security. The institutions would facilitate, the creation of a dynamic world community in which the peoples of every nation will be able to realise their potentialities in peace. The IMF would create a stable climate for international trade by harmonising its members' monetary policies, and maintaining exchange stability. It would be able to provide temporary financial assistance to countries encountering difficulties with their balance of payments. The World Bank, on the other hand, would serve to improve the capacity of countries to trade by lending money to war-ravaged and impoverished countries for reconstruction and development projects. The Bretton Woods system that emerged from the conference saw the creation of two global institutions that still play important roles today, the International Monetary Fund (IMF) and the World Bank. It also instituted a fixed exchange-rate system that lasted until the early 1970s. A key motivation for participants at the conference was a sense that the inter-war financial system had been chaotic, seeing the collapse of the gold standard, the Great Depression and the rise of protectionism. Henry Morgenthau, America's Treasury secretary, declared that the conference should " do away with the economic evils—the competitive devaluation and destructive impediments to trade—which preceded the present war. " The Bretton Woods exchange-rate system saw all currencies linked to the dollar, and the dollar linked to gold. To prevent speculation against currency pegs, capital flows were severely restricted. This system was accompanied by more than two decades of rapid economic growth, and a relative paucity of financial crises. But in the end it proved too inflexible to deal with the rising economic power of Germany and Japan, and America's reluctance to adjust its domestic economic policy to maintain the gold peg. President Nixon (of USA) abandoned the link to gold in 1971 and the fixed exchange-rate system disintegrated.
Diplomatic History
Floating the System: Germany, the United States, and the Breakdown of Bretton Woods, 1969?19732007 •
Jakob Tanner, Bretton Woods and the European Neutrals, 1944-1973. In: Marc Flandreau, Carl-Ludwig Holtfrerich, Harold James (Hg.), International financial history in the twentieth century. System and anarchy, Cambridge University Press 2003, S. 153-167.
Bretton Woods and the European Neutrals, 1944-19732003 •
1998 •
In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress
Palgrave Macmillan UK eBooks
France and the Bretton Woods International Monetary System 1960 to 19681995 •
The American Political Science Review
Closing the Gold Window: Domestic Politics and the End of Bretton Woods (book review)1985 •
1996 •
We reinterpret the commonly held view in the U.S. that France, by following a policy from 1965 to 1968 of deliberately converting their dollar holdings into gold helped perpetuate the collapse of the Bretton Woods International Monetary System. We argue that French international monetary policy under Charles de Gaulle was consistent with strategies developed in the interwar period and the
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