Bretton Woods system was established in 1944.Its name comes from the place where the conference was held, the city of Bretton Woods.Representatives from different countries came to the conclusion that it is advisable to make certain adjustments to the existing way of life.There was organized the International Monetary Fund (IMF) as the governing body responsible for the implementation of the basic provisions of the system.
International Monetary System - a set of relations established as a result of credit, settlement and other transactions on purchase and sale of goods between different countries.The introduction of the new system was carried out in order to establish stable exchange rate, it was planned to provide the elasticity of its change by reducing the significance of the gold standard.
Bretton Woods monetary system is characterized by the following basic principles:
- commitment to the gold exchange standard, that is, as the currency for payments between the states adopted the US dollar, and attached to him and pound mark.
- saved gold parity of the currency.This means that gold can be received in exchange for paper money at the fixed rate.
- introduction of a fixed exchange rate with the type of permissible deviation in the amount of one percent.
- Sustaining course.Apply techniques such as the revaluation and devaluation, which are held by the state, if necessary.
- And of course, the creation of the IMF and World Bank in order to facilitate cooperation between the countries and mutual assistance to each other.
was supposed to regulate the domestic currency exchange rate will be the Central Bank.In the event of unfavorable conditions, such as increasing the rate calculation unit to an unacceptable limit, it is launching a large number of currencies, thereby reducing the demand for it.And accordingly, the opposite situation was observed with its decline.
When carried out the Bretton Woods Conference, the main idea was to give the State an opportunity independently to adapt to rapidly changing courses.This role primarily served as the gold standard.However, experience has shown that the effectiveness of this position was short-lived, because already in 1950 there is active development of the crisis on the world stage.
Thus, when the financial market exchange rate increased sharply, the government chooses one of the two valid options to address this situation: either to rely on the effectiveness of monetary policy, or enter a new fixed rate.If a preference for the second method, there is a need to change the financial policy that would prevent the repetition of adverse events in the future.As a rule, faced with such a problem, the government did not dare to make a particular choice in favor of either option.After all, any action could lead to a significant increase in the number of unemployed in the country, to which the government was not ready.
Bretton Woods system was based on the change in currency rate, while the exchange rate of gold remained at the same level throughout the period of operation of the system.This suggests irrational use of available benefits as a gold reserve is considered to be a reliable support, because it does not lose value over time.
So Bretton Woods system worked in the member countries of the IMF for about thirty years, and has not brought the expected results.This is due to significant controversy, which was laid in the time of its organization.The whole system is built on the foundations of a fortress of the US dollar and other currencies stabilize against him.However, sustainable exchange rate can be achieved only by reducing the base currency, ie the US dollar.The collapse occurred as a result of the active development of inflation at the international level.
