The Bretton Woods Currency System

The Bretton Woods currency system was established in 1944. Its name is associated with the venue where the conference was held, the city of Bretton Wood. Representatives of different countries concluded that it is advisable to make certain adjustments to the existing way of life. In the same place, the International Monetary Fund (IMF) was organized as a regulatory body responsible for the implementation of the main provisions of the system.

The international monetary system is a set of relations that have developed as a result of the implementation of credit, settlement and other transactions for the acquisition and sale of goods between representatives of different countries. The introduction of the new system was carried out with the aim of establishing a stable exchange rate, it was planned to ensure the elasticity of its change by reducing the significance of the gold standard.

The Bretton Woods currency system is characterized by the following basic principles:

• Commitment to the gold standard, that is, the US dollar is accepted as the monetary unit for settlements between states, and the pound sterling and the brand are attached to it.
• The gold parity of the currency is preserved. This means that gold can be obtained in exchange for paper money at a fixed rate.
• The introduction of a fixed type of exchange rates with a permissible deviation of one percent.
• Ensuring the sustainability of the course. Methods are used such as revaluation and devaluation, which are carried out by the state if necessary.
• And, of course, the creation of the IMF and the World Bank in order to facilitate the process of interaction between countries and mutual assistance of each other.

It was assumed that the central bank will regulate the exchange rate within the country. If an unfavorable situation occurs, for example, an increase in the rate of the unit of account to an unacceptable limit, it releases a large amount of currency to the market, thereby reducing the demand for it. And accordingly, the reverse situation was observed with its decrease.

When the Bretton Woods Conference was held, the main idea was to enable the state to adapt itself to the rapidly changing courses. This role was previously performed by the gold standard. However, as practice has shown, the effectiveness of this position was short-lived, since already since 1950 there has been an active development of the crisis situation on the world stage.

Thus, when the exchange rate sharply increased in the financial market, the government chose one of two acceptable options for resolving this situation: either to count on the effectiveness of monetary policy, or to introduce a new fixed rate. If the preference was given to the second method, then it became necessary to change the financial policy that would prevent the recurrence of an unfavorable event in the future. As a rule, faced with such a problem, the state did not dare to make a concrete choice in favor of this or that option. After all, any action could lead to a significant increase in the number of unemployed in the country, to which the government was not ready.

The Bretton Woods currency system was based on a change in the exchange rate of monetary units, while the exchange rate for gold remained at the same level throughout the entire period of the system's operation. This indicates the irrational use of the existing advantages, since the gold reserve is considered a reliable support, because its value is not lost with time.

So, the Bretton Woods currency system operated in the IMF member countries for about thirty years and did not bring the expected results. This is explained by the significant contradiction that was laid down even at the time of its organization. The whole system was built on the foundation of the fortress of the US dollar and the stabilization of other currencies in relation to it. However, a stable exchange rate of currencies could be achieved only by weakening the basic monetary unit, that is, the US dollar. The collapse of the system was due to the active development of inflation at the international level.