tom craddick Bretton Woods system – Wikipedia


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Bretton Woods Agreement


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What is the ‘Bretton Woods Agreement’

The Bretton Woods Agreement is the landmark system for monetary and exchange rate management established in 1944. It was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Under the agreement, currencies were pegged to the price of gold, and the U.S. dollar was seen as a reserve currency linked to the price of gold.

Next Up

  1. Nixon Shock

  2. Smithsonian Agreement

  3. International Monetary Fund – IMF

  4. Fixed Exchange Rate

BREAKING DOWN ‘Bretton Woods Agreement’

The Bretton Woods Agreement remains an important part of world financial history. The creation of the International Monetary Fund (IMF) and valuation of gold and foreign exchange rates remain important to this day. The agreement also made currencies convertible for trade and other current account transactions. The strong value of the U.S. dollar eventually led to the collapse of this system after more than 20 years.

U.S. President Richard Nixon called for a suspension of the Bretton Woods Agreement in 1971 when it collapsed. The agreement was dissolved between 1968 and 1973. In 1973, the agreement officially ended.   

Setting Up the Bretton Woods Agreement

Delegates from 44 countries met to create a new international monetary system. The main goals of the meeting of the 730 delegates were to ensure a foreign exchange rate system, prevent competitive devaluations and promote economic growth.

Preparation for this event took two years. The primary designers of the system were John Maynard Keynes , of the United Kingdom, and Harry Dexter White, the chief international economist of the Treasury Department. Keynes’ plan was to establish a global central bank called the Clearing Union. White’s plan limited the powers and resources of each country. In the end, the adopted plan took ideals from both, leaning more toward White’s plan.

In 1958, the Bretton Woods system became fully functional. This happened as currencies became convertible. In order to convert currencies, countries settled their international balances in dollars, while U.S. dollars were fully convertible to gold . The exchange rate applied at the time was $35/ounce. Keeping the price of gold fixed and adjusting the supply of dollars was the responsibility of the United States. 

Creation of Two New Institutions

One of the major items that came about from the Bretton Woods Agreement was the creation of the IMF. It was created to monitor exchange rates and lend reserve currencies to nations. It was formally introduced in December 1945 when 29 members signed the Articles of Agreement. The Bretton Woods Agreement also created the World Bank Group , which was set up to provide financial assistance for countries during the reconstruction post World War I phase.

End of Bretton Woods Agreement

The Bretton Woods Agreement was dissolved between 1968 and 1973. An overvaluation of the U.S. dollar led to concerns over the exchange rates and their tie to the price of gold. President Richard Nixon called for a temporary suspension of the dollar’s convertibility. Countries were then free to choose any exchange agreement, except the price of gold. In 1973, foreign governments let currencies float, which put an end to the Bretton Woods system.

RELATED TERMS
  1. Nixon Shock

    Nixon Shock refers to the economic actions taken by President …
  2. Smithsonian Agreement

    The Smithsonian Agreement was a deal reached in 1971 among the …
  3. International Monetary Fund – IMF

    The International Monetary Fund is an international organization …
  4. Fixed Exchange Rate

    A fixed exchange rate is a regime where the official exchange …
  5. Canadian Dollar – CAD

    The Canadian dollar (CAD) is the national currency of Canada.
  6. Reserve Assets

    Reserves are external assets held by central banks to alleviate …
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    Find out which countries have the largest gold reserve stockpiles, and why governments still feel that it’s necessary to … Read Answer >>
  2. Is there a world currency? If so, what is it?

    There is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has … Read Answer >>
  3. Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country’s … Read Answer >>
  4. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange … Read Answer >>

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  • Topics

    What’s New


    World Stocks Shrivel as Trade Truce Doubts, Economic Woes Gather


    The Impact of an Inverted Yield Curve

    Topics
    • News
    • Financial Advisors
    • The Tax Center

    • Anxiety Index
    • Investing
    • Managing Wealth
    • ETFs
    • The Trump Economy
    • Retirement
    • Personal Finance
    • Trading
    • Tech
    • Life Stages
    • Small Business
    • Bitcoin
    • Special Features

  • Reference

    Dictionary

    Term Of The Day
    Risk Tolerance
    Risk tolerance is the degree of variability in investment returns that an individual …
    Read More »

    Broker Reviews

    Find the best broker for your trading or investing needs

    See Reviews

    Latest Videos


    What Does a Flattening Yield Curve Mean for Investors?

    Guides

    • Stock Basics
    • Economics Basics
    • Options Basics

    Exam Prep

    • Series 7 Exam
    • CFA Level 1
    • Series 65 Exam

  • Advisors

    Advisor Insights
    Our network of expert financial advisors field questions from our community.
    Ask A Question

    Join Advisor Insights
    Are you a financial advisor? Showcase your expertise to 20+ million investors.
    Join Now

    Financial Advisors
    Sophisticated content for financial advisors
    around investment strategies, industry trends, and advisor education.

    The Investopedia 100
    A celebration of the 100 most influential
    advisors and their contributions to critical conversations on finance.

  • Markets

    Markets
    The latest markets news, real time quotes, financials and more.

    Watchlist
    Track stocks and ETFs
    Add New Watchlist

  • Simulator

    Stock Simulator
    Trade with a starting balance of $100,000 and zero risk!

    My Portfolios
    View the performance of your stock and option holdings

  • Academy

    Investopedia Academy
    Learn from the world’s leader in financial education
    Check out all courses

    Featured Courses


    Become a day trader
    Start Learning

    Excel for Finance
    Start Learning
    Latest Courses
    • Investing for Beginners
    • Find Great Value Stocks
    • Cryptocurrency for Beginners
    • Financial Modeling
    • All Courses




  • Site Log In
  • Advisor Insights Log In
  • Newsletters

Bretton Woods Agreement


Loading the player…

What is the ‘Bretton Woods Agreement’

The Bretton Woods Agreement is the landmark system for monetary and exchange rate management established in 1944. It was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Under the agreement, currencies were pegged to the price of gold, and the U.S. dollar was seen as a reserve currency linked to the price of gold.

Next Up

  1. Nixon Shock

  2. Smithsonian Agreement

  3. International Monetary Fund – IMF

  4. Fixed Exchange Rate

BREAKING DOWN ‘Bretton Woods Agreement’

The Bretton Woods Agreement remains an important part of world financial history. The creation of the International Monetary Fund (IMF) and valuation of gold and foreign exchange rates remain important to this day. The agreement also made currencies convertible for trade and other current account transactions. The strong value of the U.S. dollar eventually led to the collapse of this system after more than 20 years.

U.S. President Richard Nixon called for a suspension of the Bretton Woods Agreement in 1971 when it collapsed. The agreement was dissolved between 1968 and 1973. In 1973, the agreement officially ended.   

Setting Up the Bretton Woods Agreement

Delegates from 44 countries met to create a new international monetary system. The main goals of the meeting of the 730 delegates were to ensure a foreign exchange rate system, prevent competitive devaluations and promote economic growth.

Preparation for this event took two years. The primary designers of the system were John Maynard Keynes , of the United Kingdom, and Harry Dexter White, the chief international economist of the Treasury Department. Keynes’ plan was to establish a global central bank called the Clearing Union. White’s plan limited the powers and resources of each country. In the end, the adopted plan took ideals from both, leaning more toward White’s plan.

In 1958, the Bretton Woods system became fully functional. This happened as currencies became convertible. In order to convert currencies, countries settled their international balances in dollars, while U.S. dollars were fully convertible to gold . The exchange rate applied at the time was $35/ounce. Keeping the price of gold fixed and adjusting the supply of dollars was the responsibility of the United States. 

Creation of Two New Institutions

One of the major items that came about from the Bretton Woods Agreement was the creation of the IMF. It was created to monitor exchange rates and lend reserve currencies to nations. It was formally introduced in December 1945 when 29 members signed the Articles of Agreement. The Bretton Woods Agreement also created the World Bank Group , which was set up to provide financial assistance for countries during the reconstruction post World War I phase.

End of Bretton Woods Agreement

The Bretton Woods Agreement was dissolved between 1968 and 1973. An overvaluation of the U.S. dollar led to concerns over the exchange rates and their tie to the price of gold. President Richard Nixon called for a temporary suspension of the dollar’s convertibility. Countries were then free to choose any exchange agreement, except the price of gold. In 1973, foreign governments let currencies float, which put an end to the Bretton Woods system.

RELATED TERMS
  1. Nixon Shock

    Nixon Shock refers to the economic actions taken by President …
  2. Smithsonian Agreement

    The Smithsonian Agreement was a deal reached in 1971 among the …
  3. International Monetary Fund – IMF

    The International Monetary Fund is an international organization …
  4. Fixed Exchange Rate

    A fixed exchange rate is a regime where the official exchange …
  5. Canadian Dollar – CAD

    The Canadian dollar (CAD) is the national currency of Canada.
  6. Reserve Assets

    Reserves are external assets held by central banks to alleviate …
Related Articles
  1. Trading

    How the Bretton Woods System Changed the World

    While the Bretton Woods system is no longer in place, it fundamentally changed the international monetary order.
  2. Trading

    How the U.S. Dollar Became the Worlds Reserve Currency

    The U.S. dollar was first minted in 1914. Find out what occurred during the last century to make the U.S. dollar the worlds reserve currency.
  3. Insights

    The US Will Remain the Worlds Reserve Currency

    Learn why the U.S. dollar is not in any danger of losing its reserve currency status and understand how China is pushing the yuan to be a reserve currency.
  4. Trading

    What It Would Take for the U.S. Dollar to Collapse

    Quantitative easing raised concerns about the dollars vulnerability, but a review of the dollars strengths and weaknesses suggests that a currency crisis is unlikely.
  5. Investing

    Digging into the iShares Global Timber & Forestry ETF (WOOD)

    iShares offers a fund that offers forestry and paper exposure — is it right for you?
  6. Investing

    Gold: The Other Currency

    Throughout history, gold has held its value against paper currencies. Learn how it can help offset market risks.
  7. Insights

    IMF, WTO and World Bank: How Do They Differ?

    Understand what IMF, WTO and the World Bank are, how they differ, and why some people question their motives.
  8. Trading

    Currency exchange: Floating rate versus fixed rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers regarding the difference between floating and fixed exchange rates.
  9. Investing

    Finding An Alternative With Timber

    Use the timber ETFs to gain exposure to the growing wood energy market.
RELATED FAQS
  1. What countries have the largest gold reserves?

    Find out which countries have the largest gold reserve stockpiles, and why governments still feel that it’s necessary to … Read Answer >>
  2. Is there a world currency? If so, what is it?

    There is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has … Read Answer >>
  3. Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country’s … Read Answer >>
  4. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange … Read Answer >>

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