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The Bretton Woods Agreement (1944)

There is no provision in the agreement for the establishment of international reserves. It expected that a new gold production would suffice. In the event of a structural imbalance, it expected national solutions, such as adjusting monetary value or improving a country`s competitive position by other means. However, the IMF had few resources to promote such national solutions. The agreement did not promote the discipline of the Federal Reserve or the U.S. government. The U.S. Federal Reserve expressed concern about a rise in the domestic unemployment rate due to the depreciation of the dollar. To undermine the efforts of the Smithsonian Agreement, the Federal Reserve lowered interest rates in order to pursue a pre-domestic policy objective of full national employment.

With the Smithsonian agreement, member states expected the dollar to return to the United States, but lower interest rates within the United States have led the U.S. dollar to continue to flow to foreign central banks. The influx of dollars into foreign banks continued the process of monetizing the dollar abroad, beating the objectives of the Smithsonian agreement. As a result, the price of the dollar in the goldless market continued to weigh on its official price; Shortly after the announcement of a 10% devaluation in February 1973, Japan and the EEC countries decided to let their currencies fluctuate. This turned out to be the beginning of the collapse of the Bretton Woods system. The end of Bretton Woods was officially ratified by the Jamaican Agreements in 1976. In the early 1980s, all industrialized countries used floating currencies. [44] [45] The Bretton Woods rules, set out in the articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a fixed exchange rate system. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to make free trade. Post-war global capitalism suffered from a huge shortage of dollars. The U.S. had huge trade surpluses and U.S.

reserves were huge and growing. It was necessary to reverse this river. Although all nations wanted to buy U.S. exports, the dollars had to leave the United States and be available for international use so that they could do so. In other words, the United States should reverse global prosperity imbalances by chartering a trade deficit financed by the U.S. outfed of reserves to other nations (a deficit in the U.S. fiscal balance). The United States could have a financial deficit, either by building plants, or by building plants, or by foreign nations. Remember that speculative investments were discouraged by the Bretton Woods agreement.

Imports from other nations were not attractive in the 1950s because American technology was up to date at that time. This is how multinationals and global aid from the United States originated. [29] The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations, to oversee the new system. The main objective of the conference was to reach an agreement on the IMF. There was sufficient consensus that the conference could also reach agreement on the IRD. To do so, the conference had to be extended from July 19, 1944 to July 22. As they study to boost an international career in finance, experts learn about the effects of international agreements such as Bretton Woods and the institutions they have created.

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