Question

What is the Bretton Woods system? And please briefly discuss reasons why this system eventually collapsed.

Answer 1

What is the Bretton Woods system?

Bretton Woods was international monetary arrangement,agreed by the allied nations in 1944 in Bretton Woods in the united states of america that led to the creation the IMF and World Bank and that set up a system of fixed exchange rates with the US dollar as the international reserve currency it established a new global monetary system. By replacing the gold standard with the U.S. dollar as the global currency. Thereby established America as the dominant power in the world economy.The aim of the Bretton Woods System was to bring economic stability among major and bigger economies in the world like Europe and America.Bretton Woods systempaved the road to an era Of unprecedented growth of trade and income for the Western industrial nations and Japan. It provided a big boost to the world trade which grew annually at over 8 per cent and incomes at nearly 6 per cent.

What ended the Bretton Woods system?

On 15 August 1971, the United States terminated convertibility of the US dollar to gold, Bringing the Bretton Woods system to an end.The US decision to suspend gold convertibility ended a key aspect of the Bretton Woods system. The remaining part of the Systemdisappeared by March 1973. A major reason for Bretton Woods' collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system.While the Bretton Woods System was dissolved in the 1970s, both the IMF and World Bank have remained strong pillars for the exchange of international currencies.