Bretton Woods Agreement Gold Standard

By September 13, 2021 No Comments

A negative balance of payments, the increase in public debt due to the Vietnam War and the programs of the Great Society, as well as monetary inflation of the Federal Reserve, led to a growing overvaluation of the dollar. [42] The drain of U.S. gold reserves culminated in the collapse of London`s gold reserve in March 1968. [43] By 1970, gold hedging in the United States had deteriorated by 55% to 22%. According to neoclassical economists, this was the point where dollar holders had lost confidence in the ability of the United States to reduce budget and trade deficits. The gold standard collapsed in 1914, when the internal conversion of banknotes into gold was abolished. The war efforts of some countries have led to high budget deficits, inflation and a collapse in world trade. The gold standard born after the First World War can hardly be called a system. The internal conversion of banknotes into gold has not been restored in most countries. The war had caused large flows of gold to the United States and the United Kingdom or to countries that had not participated in the war, to the detriment of other countries in continental Europe.

As a result, the global distribution of monetary gold has become very uneven, with the United States and France holding much of it. Moreover, the balance of payments adjustment mechanism did not work smoothly, as domestic objectives were not subordinated to the outside (Hawtrey (1947) and free trade and free mobility of capital became the exception rather than the rule. The Bretton Woods rules, set out in the treaty articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a system of fixed exchange rates. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to free trade. The United States launched the European Economic Recovery Plan (Marshall Plan) to provide significant financial and economic assistance for the reconstruction of Europe, mainly through grants, not loans. Countries that are part of the Soviet bloc, for example. B Poland, were invited to receive the subsidies, but obtained a favourable agreement with the COMECON of the Soviet Union. [31] In a speech at Harvard University on June 5, 1947, U.S.

Secretary of State George Marshall stated that, to bolster confidence in the dollar, the United States separately agreed to tie the dollar to gold at a price of $35 an ounce. With this rate, foreign governments and central banks could exchange dollars for gold. Bretton Woods set up a dollar-based payment system that defined all currencies against the dollar, themselves convertible into gold, and especially “as well as gold” for trade. The U.S. currency was now effectively the world currency, the norm to which any other currency was bound. The most important currency in the world has been most international transactions denominated in US dollars. However, the intensification of state intervention in the domestic economy has led to isolationist atmospheres that have had a profoundly negative impact on the international economy. The priority of national objectives, the independence of national action in the interwar period and the failure to recognize that these national objectives could not be achieved without some form of international cooperation – all this led to a policy of “Beggar thy Neighbor”, such as high tariffs, devaluations of competition that contributed to the collapse of the gold-based international monetary system, internal instability, and international war…