09 Apr 2021by tobiasschaller

End Of Bretton Woods Agreement

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In the fall of 1971, the G-10`s major international debates focused on how to achieve an overall balance-of-payments adjustment. The United States argued that it needed a $13 billion improvement in the current account balance, i.e. a combination of trade measures and a monetary policy adjustment that would result in $13 billion remaining in the United States. At G-10 meetings, other countries proposed measures that would result in an adjustment of only $2 billion to $3 billion. The Organization for Economic Co-operation and Development provided calculations indicating that the amount needed for international stability was $8-10 billion.57 The IMF also estimated it at $8 billion.58 At the G-10, U.S. Representative Paul Volcker made “a strong plea for swimming, given the evidence that it was not possible to reach an agreement on the level of balance of payments required. 59 The IMF has attempted to provide for occasional adjustments to discontinuous exchange rates (changes in a member`s face value) by an international agreement. Member States have been allowed to adjust their exchange rates by 1%. This trend has been to restore the balance of trade by increasing exports and reducing imports. This would only be permissible if there was a fundamental imbalance. A depreciation of a country`s money was described as a devaluation, while an increase in the value of the country`s money was described as an appreciation. Nixon`s speech was a success at home and shocked many people abroad, whom they saw as an act of troubling unilateralism; Connally`s strong conduct of subsequent foreign exchange negotiations with his foreign counterparts did little to allay those fears.

Nevertheless, after months of negotiations, the Group of Ten Industrialized Democracies (G10) agreed to a new set of fixed exchange rates focused on a devalued dollar in the Smithsonian Agreement of December 1971. Although Nixon was described by Nixon as “the most important monetary agreement in the history of the world,” the exchange rates set by the Smithsonian agreement did not last long. Fifteen months later, in February 1973, speculative pressure on the market led to a further depreciation of the dollar and a new set of exchange rate parities. A few weeks later, the dollar was again under pressure in the financial markets; But this time there would be no attempt to support Bretton Woods. In March 1973, the G-10 approved an agreement whereby six members of the European Community merged their currencies and swam together against the U.S. dollar, a decision that effectively indicated the abandonment of the Bretton Woods fixed exchange rate system in favour of the current variable exchange rate system. 730 delegates from the 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. Delegates deliberated from July 1 to 22, 1944 and signed the Bretton Woods Agreement on the last day.

Through the establishment of a system of rules, institutions and procedures for regulating the international monetary system, these agreements created the IMF and the International Bank for Reconstruction and Development (IBRD), now part of the World Bank Group.

Categories: Allgemein