The Bretton Woods Era: 1944.E2.80.931973 International monetary systems

harry dexter white (left) , john maynard keynes (right) @ bretton woods

british , american policy makers began plan post war international monetary system in 1940s. objective create order combined benefits of integrated , relatively liberal international system freedom governments pursue domestic policies aimed @ promoting full employment , social wellbeing. principal architects of new system, john maynard keynes , harry dexter white, created plan endorsed 42 countries attending 1944 bretton woods conference, formally known united nations monetary , financial conference. plan involved nations agreeing system of fixed adjustable exchange rates currencies pegged against dollar, dollar convertible gold. in effect gold – dollar exchange standard. there number of improvements on old gold standard. 2 international institutions, international monetary fund (imf) , world bank created; key part of function replace private finance more reliable source of lending investment projects in developing states. @ time defeated powers of germany , japan envisaged states in need of such development, , there desire both , britain not see defeated powers saddled punitive sanctions inflict lasting pain on future generations. new exchange rate system allowed countries facing economic hardship devalue currencies 10% against dollar (more if approved imf) – not forced undergo deflation stay in gold standard. system of capital controls introduced protect countries damaging effects of capital flight , allow countries pursue independent macro economic policies

while still welcoming flows intended productive investment. keynes had argued against dollar having such central role in monetary system, , suggested international currency called bancor used instead, overruled americans. towards end of bretton woods era, central role of dollar became problem international demand forced run persistent trade deficit, undermined confidence in dollar. this, emergence of parallel market gold price soared above official mandated price, led speculators running down gold reserves. when convertibility restricted nations only, some, notably france, continued building hoards of gold @ expense of us. these pressures caused president nixon end convertibility gold on 15 august 1973. event marked effective end of bretton woods systems; attempts made find other mechanisms preserve fixed exchange rates on next few years, not successful, resulting in system of floating exchange rates.