The Bretton Woods Agreement was negotiated in July 1944 by delegates from 44 countries at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. It`s called the Bretton Woods Agreement. It was not until 1958 that the Bretton Woods system became fully operational. After their implementation, the provisions required that the U.S. dollar be pepped to the value of gold. In addition, all other currencies in the system have been indexed to the value of the U.S. dollar. The exchange rate applied at the time put the price of gold at $35 per ounce. The Bretton Woods system included 44 countries.
These countries have been brought together to help regulate and promote cross-border international trade. As with the benefits of all monetary fixing regimes, monetary links are expected to allow monetary stabilization of trade in goods and services as well as financing. Although the Bretton Woods conference itself took place for only three weeks, preparations had been underway for several years. The main creators of the Bretton Woods system were the famous British economist John Maynard Keynes and the American chief economist of the US Treasury Harry Dexter White. Keynes` hope was to create a powerful global central bank called the Clearing Union, and a new international reserve currency called Bancor. White`s plan provided for a more modest credit fund and a greater role for the U.S. dollar, instead of creating a new currency. In the end, the adopted plan took up the ideas of both and was more inspired by White`s plan.
The Bretton Woods Agreement created two Bretton Woods institutions, the IMF and the World Bank. In December 1945, the two institutions were officially established and survived the review of time and served as important pillars around the world for capital financing and international business activities. In 1971, concerned that the U.S. gold supply was no longer sufficient to cover the number of dollars in circulation, President Richard M. Nixon devalued the U.S. dollar against gold. After a race to the gold reserve, he declared a temporary suspension of the convertibility of the dollar to gold. By 1973, the Bretton Woods system had collapsed. Countries could then choose any foreign exchange agreement for their currency, with the exception of the attachment of their value to the price of gold. They could, for example, link their value to another country`s currency or a basket of currencies, or simply let them float freely and allow market forces to determine their value against the currencies of other countries. All countries in the Bretton Woods system have agreed to make a firm commitment to the U.S. dollar with diversions of only 1%.
Countries were required to monitor and maintain their monetary commitments, which they achieved primarily by using their currency to buy or sell U.S. dollars as needed. The Bretton Woods system has therefore minimized the volatility of international exchange rates that has helped international trade relations. Greater stability in foreign exchange exchange has also been a success factor in the World Bank`s support for international lending and subsidies. About 730 delegates from 44 countries met in Bretton Woods in July 1944 with the main objective of creating an effective exchange rate system, preventing competitive currency devaluations and promoting international economic growth.