Question

The Bretton Woods system broke down in the early 1970s for all but one of the following reasons:

Question 35 options:

	deficit countries losing international reserves were not willing to devalue their currencies.
	surplus countries were not willing to revalue their currencies upwards.
	surplus countries were not willing to pursue more expansionary policies.
	the United States had been pursuing an inflationary monetary policy to reduce domestic unemployment.

Answer 1

The correct answer is:(A) deficit countries losing international reserves were not willing to devalue their currencies.

The Bretton Woods System required a currency peg to the U.S. dollar which was in turn pegged to the price of gold. The Bretton Woods System collapsed in the 1970s as the US decision to suspend gold convertibility ended a key aspect of the Bretton Woods system. The remaining part of the System, the adjustable peg disappeared by March 1973. A key reason for Bretton Woods' collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system.