Bretton Woods Agreement And The Move Towards Fiat Money

In theory, international trade imbalances have been automatically corrected by the gold standard. A deficit country would have depleted its gold reserves and would therefore have to reduce its money supply. The resulting drop in demand would reduce imports and lower prices would boost exports; That would make up the shortfall. Any country where inflation is in place would lose gold and would therefore have a reduction in the money available to spend it. What has proven to be largely reflecting the preferences of the United States: a subscription and quota system, integrated with the IMF, which should not itself be more than a fixed pool of national currencies and gold subscribed by each country, unlike a world central bank capable of creating money. The Fund was tasked with managing the trade deficits of different nations so that they would not cause currency devaluations that would lead to lower imports. Hyperinflation has caused the value of money to fall so dramatically that, in some cases, people need wheelbarrows full of money to buy a loaf of bread. Far from being a period of international cooperation and a global order, the years of the Bretton Woods Agreement revealed the difficulties inherent in creating and maintaining an international order that pursued both free and unfettered exchanges, while allowing nations to pursue autonomous political objectives. The discipline of a gold standard and fixed exchange rates proved too strong for fast-growing economies with different levels of competition.

With the demonization of gold and the transition to fluctuating currencies, the Bretton Woods era should be seen as a transition from a more disciplined international monetary order to a much more flexible period. In the wake of the crisis, the IMF gradually softened its stance on “free” principles such as its guidelines against the introduction of capital controls. In 2011, IMF Managing Director Dominique Strauss-Kahn said that promoting jobs and justice must be “at the heart” of the IMF`s political agenda. [48] The World Bank has signaled a transition to stronger job creation priorities. [49] [50] The World Bank, despite its name, was not (and is) not the central bank of the world. At the time of the Bretton Woods agreement, the World Bank was created to lend to European countries devastated by the Second World War. The World Bank`s focus has shifted to lending to economic development projects in emerging countries. … [D]i caximate cause of the world depression was a strukturell fehlerhaft and poorly managed international gold standard. … For many reasons, including the Federal Reserve`s desire to stem the U.S. stock market boom, monetary policy in several major countries became contractualized in the late 1920s, a contraction that was transmitted worldwide by the gold standard.

What began to be a lenient deflationary process began to take off when the banking and monetary crises of 1931 triggered an international “battle for gold”. The sterilization of gold inflows by surplus countries [the United States and France], the substitution of gold by foreign exchange reserves and runs to commercial banks has led to an increase in the coverage of silver gold and, consequently, a sharp involuntary decrease in domestic shipments. Monetary contractions, on the other hand, have been strongly linked to lower prices, output and employment. Effective international cooperation could, in principle, have allowed for the expansion of money on a global scale despite restrictions on the gold standard, but disputes over the reparations and war debts of the First World War and the insularity and inexperience of the Federal Reserve prevented this result.