The Bretton Woods Agreement Different From The Gold Standard In That It

April 13, 2021 – 8:39 am

In 1971, more and more dollars were printed in Washington, D.C., and then injected abroad to pay for government spending on the military and social program. In the first six months of 1971, assets fled the United States for $22 billion. On August 15, 1971, Nixon responded under the Economic Stabilization Act of 1970 to Executive Order 11615, which unilaterally introduced 90-day wage and price controls, a 10% increase in imports and, most importantly, “closed the golden window,” making the dollar directly convertible into gold, off the open market. It is unusual that this decision was taken without consultation with members of the international monetary system, or even its own Foreign Ministry, and that it was soon called a Nixon shock. On the other hand, after the creation of Bretton Woods, where the United States produced half of its manufactured goods and held half of its reserves, the two charges of international management and the Cold War could first cope with the double burdens of international leadership and the Cold War. During the 1950s, Washington maintained a balance-of-payments deficit to finance credit, aid and troops for allied regimes. But in the 1960s, costs became less bearable. Until 1970, the United States held less than 16% of international reserves. Adjusting to these changes in reality has been hampered by the U.S. fixed exchange rate requirement and the U.S. requirement to convert the dollar into gold on demand. The big question at the Bretton Woods conference on the institution that would emerge from the IMF was the question of future access to international liquidity and whether it should resemble a world central bank capable of building up new reserves at will or a more limited credit mechanism. Thus, the most developed market economies subscribed to the U.S.

vision of post-war international economic management, which aimed to create and maintain an effective international monetary system and encourage the reduction of trade and capital flows. In a way, the new international monetary system was a return to a system similar to the pre-war gold standard, which used only the U.S. dollar as the new reserve currency in the world, until international trade redistributed the world`s gold supply. The IMF`s modest credit facilities have clearly not been enough to cope with western European`s huge balance-of-payments deficits. The problem was compounded by the reaffirmation by the IMF Governing Council of the Bretton Woods Agreement that the IMF can only lend to current account deficits and not for capital and reconstruction purposes.

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