The Bretton Woods Agreement and the implications it had

Under the Bretton Woods System, gold was the basis of the US dollar and other currencies were pegged to the value of the US dollar. By 1973, the Bretton Woods system had collapsed. Countries were then free to choose any exchange arrangement for their currency, except tying its value to the price of gold. Let's see what the Bretton Woods Agreement is and what implications it had in the past. 

What was the Bretton Woods Agreement and System?

The Bretton Woods Agreement was negotiated in July 1944 by delegates from 44 countries at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire. Hence the name "Bretton Woods Agreement." Under the Bretton Woods System, gold was the basis of the US dollar and other currencies were pegged to the value of the US dollar. The Bretton Woods System came to an end in the early 1970s, when President Richard M. Nixon announced that the United States would stop exchanging gold for US currency.

Explanation of the Agreement and the Bretton Woods System

Approximately 730 delegates representing 44 countries met at Bretton Woods in July 1944 with the primary objectives of creating an effective currency system, avoiding competitive currency devaluations, and promoting international economic growth. The Bretton Woods Agreement and System were fundamental to achieving these objectives. The Bretton Woods Agreement also created two important organizations: the International Monetary Fund (IMF) and the World Bank. Although the Bretton Woods System dissolved in the 1970s, both the IMF and the World Bank have remained strong pillars for international currency exchange. Although the Bretton Woods conference itself took place in just three weeks, its preparations had been underway for several years. The main designers of the Bretton Woods System were the famous British economist John Maynard Keynes and the Chief International Economist of the US Treasury Department Harry Dexter White. Keynes' hope was to establish a powerful world central bank that would be called the Clearing Union and would issue a new international reserve currency called the bancor. White's plan provided for a more modest loan fund and a larger role for the US dollar, rather than the creation of a new currency. In the end, the adopted plan took ideas from both, leaning more toward White's plan.

How the collapse of Bretton Woods happened

In 1971, concerned that the US gold reserve was no longer sufficient to cover the number of dollars in circulation, President Richard M. Nixon devalued the US dollar against gold. Following a run on gold reserves, he declared the temporary suspension of the convertibility of the dollar into gold. By 1973, the Bretton Woods system had collapsed. Countries were then free to choose any exchange arrangement for their currency, except tying its value to the price of gold. They could, for example, peg its value to another country's currency, or to a basket of currencies, or simply let it float freely and allow market forces to determine its value relative to other countries' currencies. The Bretton Woods Agreement remains a significant event in global financial history. The two Bretton Woods institutions he created, the International Monetary Fund and the World Bank, played an important role in the reconstruction of Europe after World War II. Subsequently, both institutions have continued to maintain their founding objectives, while serving the interests of world governments today.