BRETTON WOODS AGREEMENT Meaning and
Definition
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The Bretton Woods Agreement refers to a historic international monetary agreement reached in July 1944 at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, United States. This landmark agreement established a new post-World War II global economic framework aimed at promoting stable and cooperative economic relations among nations.
The agreement established two key institutions: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which later became part of the World Bank Group. The IMF was created to foster international monetary cooperation, stabilize exchange rates, and provide financial assistance to countries facing balance-of-payment difficulties. The World Bank aimed to provide funding for the reconstruction and development projects of war-torn and developing countries.
Under the Bretton Woods system, participating countries agreed to fix their exchange rates to the U.S. dollar, while the U.S. dollar itself was fixed to gold at a rate of $35 per ounce. This arrangement aimed to ensure stability and prevent excessive fluctuations in currency values. It also established the U.S. dollar as the global reserve currency.
The Bretton Woods Agreement played a crucial role in shaping the post-war international economic order, emphasizing economic stability, orderly exchange rates, and financial cooperation among nations. However, the system eventually faced challenges and came to an end in 1971 as countries experienced difficulties maintaining fixed exchange rates, leading to the adoption of flexible exchange rates and the breakdown of the gold standard.
