Abstract
The Bretton Woods system was the first attempt to create an international monetary arrangement with fixed exchange rates based on international cooperation of central banks and supervised by a newly created international institution, the International Monetary Fund (IMF). Negotiated in 1944 and effective from 1946, the system collapsed in 1971 because of two fundamental problems, the adjustment and the confidence problem. The adjustment problem resulted from the difficulty to reduce international imbalances by demand-management policies and changes of the par values. Once convertibility for current account transactions was restored in 1958, divergent economic policy preferences caused centrifugal capital movements that proved impossible to contain over time. The confidence problem emerged because the Bretton Woods system, against the will of its architects, turned into a gold dollar standard as a result of the economic and political supremacy of the USA. As the dollar became the world reserve currency, fueled by sizeable US balance of payment deficits in the 1960s, holders of dollars became increasingly skeptical toward the stability of the dollar. Due to the threat of an imminent run on US gold reserves by foreign investors and central banks, President Richard Nixon suspended the gold convertibility of the dollar, thus effectively ending the basis of the Bretton Woods system.
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Kugler, P., Straumann, T. (2018). International Monetary Regimes: The Bretton Woods System. In: Battilossi, S., Cassis, Y., Yago, K. (eds) Handbook of the History of Money and Currency. Springer, Singapore. https://doi.org/10.1007/978-981-10-0622-7_25-1
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DOI: https://doi.org/10.1007/978-981-10-0622-7_25-1
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