What Was The Agreement For Bretton Woods System

Nazi Germany also worked with a controlled bloc of nations until 1940. Germany forced the surplus trading partners to spend this surplus on products imported from Germany. [8] Thus, Britain survived by retaining the surpluses of the sterling nation in its banking system, and Germany survived by forcing its trading partners to buy its own products. The United States feared that a sudden decline in war spending would bring the nation back into unemployment in the 1930s, and therefore wanted sterling nations and all European nations to be able to import from the United States, which is why the United States supported free trade and the international convertibility of currencies into gold or dollars. [9] In return, the role of government in the national economy has been associated with the responsibility to ensure a certain economic well-being of its citizens. The system of economic protection of vulnerable citizens, sometimes called the welfare state, was born from the Great Depression, which generated a popular demand for state intervention in the economy, and theoretical contributions from the Keynesian business school, which affirmed the need for state intervention to combat market imperfections. The security of money by the gold standard began to become a serious problem in the late 1960s. In 1971, the problem was so serious that U.S. President Richard Nixon announced that the possibility of converting the dollar to gold was “temporarily” suspended. The stage was inevitably the last straw for the system and the agreement that sketched it. The Bretton Woods Agreement of 1944 introduced a new global monetary system. It replaced the gold standard with the U.S. dollar as the global currency.

It thus established America as a dominant power in the global economy. After the agreement was signed, America was the only country with the ability to print dollars. In 1967, there was an attack on the pound and a gold rush in the sterling area, and on 18 November 1967, the British government was forced to devalue the pound. [34] US President Lyndon Baines Johnson had a stark choice between introducing protectionist measures such as travel taxes, export subsidies and budget cuts – or accepting the risk of a “gold rush” and the dollar. From Johnson`s perspective: “The global supply of gold is not enough to make the current system viable – especially since the use of the dollar as a reserve currency is essential to create the international liquidity needed to sustain global trade and growth.” [35] The new economic system required an accepted instrument for investment, trade and payments. However, unlike economies, the international economy does not have a central government capable of issuing and managing currency use.