Bretton Woods System of Monetary Management


The establishment of the Bretton Woods System of Monetary Management in 1944 was a watershed point in international finance. Bretton Woods, New Hampshire was the site of the United Nations Monetary and Financial Conference, where the idea for the system was hatched. To ensure a consistent exchange rate, the participating countries linked their currencies to the U.S. dollar, which was backed by gold.

Through trade and investment, this structure helped the economy rebuild after World War Two. During this conference, the International Monetary Fund (IMF) and the World Bank were established to promote global economic cooperation and lend emergency funds for rebuilding efforts. The rising U.S. trade deficit and the need of maintaining gold reserves were two major obstacles that the Bretton Woods System had to overcome.

When the United States stopped redeeming dollars for gold in the early 1970s, the system disintegrated and the period of variable exchange rates began. Despite its failure, the Bretton Woods System established a framework for worldwide monetary cooperation and shaped the design of the international monetary system that followed.

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