Which Country Opted Out of the Bretton Woods Agreement
In 1971, President Richard M. Nixon devalued the U.S. dollar against gold over fears that the U.S. gold supply would no longer be sufficient to cover the number of dollars in circulation. After a scramble for gold reserves, he declared a temporary suspension of the dollar`s convertibility into gold. By 1973, the Bretton Woods system had collapsed. Countries were then free to choose any exchange rate agreement for their currency, except to relate their value to the price of gold. For example, they could peg its value to the currency or basket of currencies of another country, or simply let it fluctuate freely and allow market forces to determine its value against the currencies of other countries. In 1971, the United States suffered massive stagflation – a combination of inflation and recession that causes unemployment and low economic growth. Under the agreement, countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar.
When the value of a country`s currency became too low against the dollar, the bank bought its currency on the foreign exchange markets. Imbalances in international trade were theoretically automatically corrected by the gold standard. A deficit country would have exhausted 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 offset the deficit. Any country suffering from inflation would lose gold and thus reduce the amount of money available to spend. This reduction in the quantity of money would help reduce inflationary pressures. The use of gold during this period was supplemented by the pound sterling. Based on the dominant British economy, the pound has become a reserve, transactional and intervention currency. But the pound was not up to the challenge of serving as the world`s main currency, given the weakness of the British economy after World War II. The Bretton Woods system of monetary administration established the rules for trade and financial relations between the United States, Canada, Western European countries, Australia and Japan after the Bretton Woods Agreements of 1944. The Bretton Woods system was the first example of a fully negotiated monetary order that would govern monetary relations among independent States. The main features of the Bretton Woods system were the obligation for each country to pursue a monetary policy that kept its external exchange rates below 1% by tying its currency to gold, and the ability of the International Monetary Fund (IMF) to close temporary payment imbalances.
In addition, the lack of cooperation between other countries must be remedied and a competitive devaluation of currencies must be prevented. The Bretton Woods system itself collapsed in 1971 when President Richard Nixon cut the link between the dollar and gold, a move made to prevent a rush on Fort Knox, which contained only a third of the gold bar needed to cover the dollars in foreign hands. By 1973, most of the world`s major economies had allowed their currencies to fluctuate freely against the dollar. It was a difficult transition, marked by falling stock prices, soaring oil prices, bank failures and inflation. The Bretton Woods system gave nations more flexibility than strict adherence to the gold standard. It also offered less volatility than a monetary system without any standards. A member country always retained the possibility to change the value of its currency if necessary to correct a “fundamental imbalance” in the current account. The dates indicated are those on which the course was introduced A high degree of agreement among the powerful on the objectives and means of international economic governance facilitated the decisions of the Bretton Woods Conference. The basis of this agreement was a common belief in capitalism. Although the governments of developed countries differed somewhat in the type of capitalism they favored for their economies (the France, for example, favored stronger state planning and intervention, while the United States favored relatively limited state intervention), all relied primarily on market mechanisms and private property. The agreement did not contain any provision relating to the creation of international reservations. He assumed that a new production of gold would suffice.
In the case of structural imbalances, he expected national solutions. B, for example, an adjustment in the value of the currency or an improvement in a country`s competitive position by other means. However, the IMF had few resources to promote such domestic solutions. Before Bretton Woods, most countries followed the gold standard. This meant that each country guaranteed that it would buy back its currency for its gold value. According to Bretton Woods, each member agreed to buy back its currency for US dollars, not gold. The US-backed IMF plan was aimed at ending restrictions on the transfer of goods and services from one country to another, eliminating currency blocs, and lifting currency controls. For nearly two centuries, French and American interests had converged in the Old and New Worlds. [Citation needed] During the war, French distrust of the United States was embodied by General Charles de Gaulle, president of the French provisional government. [Citation needed] De Gaulle fought fiercely against American officials as he tried to preserve his country`s colonies and freedom of diplomatic action.