Bretton Woods System – Definition

Bretton Woods System Definition 

Bretton Woods System, developed in 1944 during the UN Monetary and Financial Conference, pins the value of currencies on the price of Gold with the US dollar acting as a reserve currency which compares to the price of gold.

A Little More on What is the Bretton Woods Agreement

The Bretton Woods System was used in the development of IMF (International Monetary Fund) and it has been used to value gold and foreign currencies. Though it has been used to convert currencies for trade, the increasing value of the US dollar made the system unreliable after 20 years of use. It has not been used since President Richard Nixon of the US suspended it in 1971 and its dissolution between 1968 and 1973.

Setting Up the Bretton Woods Agreement

This system was designed primarily by John Maynard Keynes whose idea was to have a global central bank and Harry Dexter White whose plan was to limit the resources and powers of countries. The system was formed by borrowing ideas from both economists but leaning more towards Whites idea. The system was rolled out officially in 1958 and conversion of currencies started. At the time, countries had to settle their debts in dollars with $35 being equal to an ounce of gold.

Creation of Two New Institutions

The IMF was created in 1945 as an institution to monitor currency exchange rates and to lend dollars to nations. The agreement also saw the creation of World Bank whose goal was to offer financial assistance for countries that needed it after World War I.

End of Bretton Woods Agreement

The Bretton Woods System collapsed due to an increase in value of the US dollar. The overvaluation of the dollar raised concerns on the tie of the value of currencies to gold. President Richard Nixon suspended the system in 1971 after which governments let their currencies float and the system was ended in 1973.

References for Bretton Woods Agreement

• https://www.investopedia.com/terms/b/brettonwoodsagreement.asp
• https://en.wikipedia.org/wiki/Bretton_Woods_system
• http://www.businessdictionary.com/definition/Bretton-Woods-system.html