The Bretton Woods System

Paper Summary:

This paper examines the post-war international monetary system, which was introduced to deal with the shortcomings of a freely fluctuating exchange rates regime. It starts by presenting the history of the Bretton Woods System (BWS) and its features. The paper then outlines the pre-requisites for the BWS to operate. A series of events that led to the collapse of the BWS are also studied alongside its inherent defect (the 'n'th country problem).

From the Paper:

"As early as 1942, the Americans and British shared common ground on international monetary matters. They were opposed to a system of freely fluctuating exchange rates, which they judged to have had adverse effects on the world economies on two counts, in the years immediately after World War I and in the 1930s when the Great Depression set in. They were also opposed to a system of absolutely fixed exchange rates. In addition, there was also a common view that unregulated and competitive trade restrictions were not beneficial to the international community. By contrast, both countries agreed that countries should be free to control certain capital transfers especially those of a short-term nature."

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