Bretton Wood Conference Report
1-22 July 1944
By: Yukie, Ing and Mie
Abstract
This text introduces the Bretton Woods Conference, which was held in 1944 at Bretton Woods, New Hampshire. Beginning with the economic situation at that time, specifically before and after the World War II, this report points out how important it was to set up a new monetary system. The creation of World Bank, IMF and GATT is also mentioned. Furthermore, advantages and disadvantages, which the system has brought, are explained as well. And the ending of Bretton Woods System will conclude the whole report.
Table of content Page
Abstract……………………………………………………………………………………..2
Economic Situation before and after World War II……………………..3
Bretton Wood Conference………………………………………………………….3
International Monetary Funds………..………………………………………….4
World Bank…………………………………………………………………………………4
General Agreement of Tariff and Trade………………………………………5
Advantage and Disadvantage of Bretton Wood System………………5
The ending of the system……………………………………………………………6
Conclusion………………………………………………………………………………….6
Reference……………………………………………………………………………………7
Economic Situation before and after World War II
Before the World War II, the economic boom, which had followed the period of reconstruction after the First World War. However, in mid-1920s, the workers movements were failed. That came to an abrupt end with the Wall Street crash and the Great Depression. Unemployment speared from the US to all the country in the world. People do not have enough money to buy things, so that everyday thousands of food wasted and throw into the sea.
At the end of World War II, all the allied countries all went bankrupt except for America. They could not pay for the debts. Europe and the rest of the world need to spend a long time to rebuild the economy. However, all of Europe was devastated and incapable of feeding itself let alone reconstruction. US dollar stays at the stable level, but other currencies were all flexible. At that time, America already built a thriving manufacturing industry, and selling the weapon to other countries. Although US owned a lot of gold, more manufacturing capacity and more military power than rest of the world, but the US could not live without the markets and allies. US needed to rebuild the capitalism, especially in Europe.
The Bretton Woods Conference
In such the chaos situation, the United Nations Monetary And Financial Conference which gathering 730 representatives from 44 nations were held from 1 to 22 July 1944. It took place at the Mount Washington Hotel in a small town namely Bretton Woods, New Hampshire (clearly that the name Bretton Woods Conferences is named after this place). The conference had successfully come up with the Bretton Woods System, which invented a system helping convert one currency to another. It created a project for the International Bank for Reconstruction and Development as known as World Bank to provide long-term capital for developing countries as well as loans for countries needing reconstruction after the War. Apart from it, the International Monetary Fund (IMF) was also drawn up to stabilize the exchange rates between currencies. And lastly , the conference brought the idea of the General Agreement on Tariffs and Trade (GATT) to oversee the break down of trade barriers.
IMF
It was not until December 27, 1945, when 29 participating countries of Bretton Wood Conference agreed that the IMF was officially established. It is an international organization consisting of 183 member countries today, which is 6 times increased comparing to the first signed day. With the aim of promoting international monetary cooperation, the IMF established a global monitoring agency, which played a role of supervising, consulting and collaborating. It creates opportunities for world trade to expand and thereby contributes to the maintenance and promotion of high levels of employment and real income. In addition, the IMF ensures exchange rate stability to avoid competitive exchange depreciation. And here is how it works; the currency will be fixed to US dollar that is also tied to gold afterward. The system makes sure the converting rate of dollar to 1 ounce of gold is stable at $35 and it allows other currency to convert to US dollar then to gold so when we convert those currency, there would not be a big gap. And it will pack all the currency together. So in general, US dollar can be seen as a monitor agency and by law, the US was responsible to keep the dollar price of gold fixed and they had to adjust the supply of dollar to maintain confidence in future gold convertibility.
WORLD BANK
World Bank or the International Bank for Reconstruction and Development is an independent organization of United Nation. To join it, the country must be a member of IMF. Since it provides nearly $16 billion annually to its client countries, it can be seen as the world’s most important source of financial aid for developing nations. It helps each developing country to grow and fight against poverty. Its goals are to improve living standards and to eliminate the worst forms of poverty. It supports the restructuring process of economies and provides capital for productive investments. Furthermore, by making guarantees or accepting partnerships with investors, it encourages foreign direct investment into a nation.
GATT
It was created during the BWC but it officially formed 3 years later in 1947. GATT is a predecessor of WTO, before 1994 it was called with the name of General agreement tariff and trade, the main goal was to reduce barriers of international trade through the reduction of tariffs, quotas and subsidies among nations. Along with the other two organizations, GATT is a part of Bretton Woods System and it promotes the trade between countries.
The advantages and disadvantages of the Bretton Woods System
After the successful establishment of Bretton Wood Conference, many countries gained a lot of benefits from the system, which created by IMF, World Bank and GATT.
Below are several advantages of the Bretton Woods system:
The flexible exchange rate became more stable in many countries by maintaining the equilibrium of the internal and external of the standard at the situation.
Help for the economics growth of the countries and maintains the economic stabilizations including balance of trade, service and payments in the proper level by the monetary policy autonomy.
The conference helps in the expansion of international trades and investment especially to the developing countries after the Second World War.
The system provided the benefits to the employees because the governments are aims to increase the productivities of their countries as much as possible.
At the same time, the advantages of the system had brought disadvantages which linked to the economics of the country during and after the developing, such as:
Risk of exchange rate, which is too volatility (more frequent and over needed).
Use too much of expansion of monetary policy which can create the higher inflation rates. The more frequent the policy use, the higher the inflation increases.
The disadvantages of the Bretton Woods Conference had considered as one of the factors that leads to the end of the system.
The end of the Bretton Woods systems
When the economics of European and Japan had recovered, United State of America faced the big problem of deficit from payments also the international reserves of the country decreased by 13 billions and it caused the US dollar starting to drop.
The European central bank had try to solve the problem of low rate in the US dollar by took some of the spare dollars exchange with the reserved gold and also reduced the exchange activity of dollars to gold. Moreover, the government designed to announce the measure for import tax that is 10%. Therefore, the price of the gold rose from $35 to $42.22 in order to prevent the quick loss of the gold in the central bank.
However, this solution did not make any changes to the economics and there were still some speculation. Therefore the floating exchange rate system had created. On April 1973, the gold standard had canceled and the floating exchange system had certified as the formal system in the united state which still using now. The floating exchange systems are more protected the exchange rate from the economics conditions of other countries and these system allowed other countries to choose their own exchange rate system.
Conclusion
To sum up, The Bretton woods conference was one of the most important financial events in the economics history that took place in the Bretton woods in the united state during the period of interwar. The aims were to introduce to the new financial systems, which will help to develop the economics of some countries after World War II and create an international basic of exchanging the currency. The conference gathered 730 delegates from 44 countries for 21 days from 1 to 22 July 1944.
References
2001-2009.state.gov. (2015). The Bretton Woods Conference, 1944. Retrieved 25 July 2015, from http://2001-2009.state.gov/r/pa/ho/time/wwii/98681.htm
Marxists.org. (2015). Glossary of Events: Br. Retrieved 26 July 2015, from https://www.marxists.org/glossary/events/b/r.htm
Rates, T. (2015). The Advantages and Disadvantages of Flexible Exchange Rates - For Dummies. Dummies.com. Retrieved 26 July 2015, from http://www.dummies.com/how-to/content/the-advantages-and-disadvantages-of-flexible-excha.html
TIME.com. (2008). Breaking News, Analysis, Politics, Blogs, News Photos, Video, Tech Reviews - TIME.com. Retrieved 26 July 2015, from http://content
The improper banking activity of that time caused that commercial banks took too much risk with the d
Bretton Wood Conference Report1-22 July 1944By: Yukie, Ing and MieAbstractThis text introduces the Bretton Woods Conference, which was held in 1944 at Bretton Woods, New Hampshire. Beginning with the economic situation at that time, specifically before and after the World War II, this report points out how important it was to set up a new monetary system. The creation of World Bank, IMF and GATT is also mentioned. Furthermore, advantages and disadvantages, which the system has brought, are explained as well. And the ending of Bretton Woods System will conclude the whole report.Table of content PageAbstract……………………………………………………………………………………..2Economic Situation before and after World War II……………………..3Bretton Wood Conference………………………………………………………….3International Monetary Funds………..………………………………………….4World Bank…………………………………………………………………………………4General Agreement of Tariff and Trade………………………………………5Advantage and Disadvantage of Bretton Wood System………………5The ending of the system……………………………………………………………6Conclusion………………………………………………………………………………….6 Reference……………………………………………………………………………………7Economic Situation before and after World War IIBefore the World War II, the economic boom, which had followed the period of reconstruction after the First World War. However, in mid-1920s, the workers movements were failed. That came to an abrupt end with the Wall Street crash and the Great Depression. Unemployment speared from the US to all the country in the world. People do not have enough money to buy things, so that everyday thousands of food wasted and throw into the sea. At the end of World War II, all the allied countries all went bankrupt except for America. They could not pay for the debts. Europe and the rest of the world need to spend a long time to rebuild the economy. However, all of Europe was devastated and incapable of feeding itself let alone reconstruction. US dollar stays at the stable level, but other currencies were all flexible. At that time, America already built a thriving manufacturing industry, and selling the weapon to other countries. Although US owned a lot of gold, more manufacturing capacity and more military power than rest of the world, but the US could not live without the markets and allies. US needed to rebuild the capitalism, especially in Europe. The Bretton Woods ConferenceIn such the chaos situation, the United Nations Monetary And Financial Conference which gathering 730 representatives from 44 nations were held from 1 to 22 July 1944. It took place at the Mount Washington Hotel in a small town namely Bretton Woods, New Hampshire (clearly that the name Bretton Woods Conferences is named after this place). The conference had successfully come up with the Bretton Woods System, which invented a system helping convert one currency to another. It created a project for the International Bank for Reconstruction and Development as known as World Bank to provide long-term capital for developing countries as well as loans for countries needing reconstruction after the War. Apart from it, the International Monetary Fund (IMF) was also drawn up to stabilize the exchange rates between currencies. And lastly , the conference brought the idea of the General Agreement on Tariffs and Trade (GATT) to oversee the break down of trade barriers. IMFIt was not until December 27, 1945, when 29 participating countries of Bretton Wood Conference agreed that the IMF was officially established. It is an international organization consisting of 183 member countries today, which is 6 times increased comparing to the first signed day. With the aim of promoting international monetary cooperation, the IMF established a global monitoring agency, which played a role of supervising, consulting and collaborating. It creates opportunities for world trade to expand and thereby contributes to the maintenance and promotion of high levels of employment and real income. In addition, the IMF ensures exchange rate stability to avoid competitive exchange depreciation. And here is how it works; the currency will be fixed to US dollar that is also tied to gold afterward. The system makes sure the converting rate of dollar to 1 ounce of gold is stable at $35 and it allows other currency to convert to US dollar then to gold so when we convert those currency, there would not be a big gap. And it will pack all the currency together. So in general, US dollar can be seen as a monitor agency and by law, the US was responsible to keep the dollar price of gold fixed and they had to adjust the supply of dollar to maintain confidence in future gold convertibility.WORLD BANKWorld Bank or the International Bank for Reconstruction and Development is an independent organization of United Nation. To join it, the country must be a member of IMF. Since it provides nearly $16 billion annually to its client countries, it can be seen as the world’s most important source of financial aid for developing nations. It helps each developing country to grow and fight against poverty. Its goals are to improve living standards and to eliminate the worst forms of poverty. It supports the restructuring process of economies and provides capital for productive investments. Furthermore, by making guarantees or accepting partnerships with investors, it encourages foreign direct investment into a nation.GATTIt was created during the BWC but it officially formed 3 years later in 1947. GATT is a predecessor of WTO, before 1994 it was called with the name of General agreement tariff and trade, the main goal was to reduce barriers of international trade through the reduction of tariffs, quotas and subsidies among nations. Along with the other two organizations, GATT is a part of Bretton Woods System and it promotes the trade between countries.The advantages and disadvantages of the Bretton Woods SystemAfter the successful establishment of Bretton Wood Conference, many countries gained a lot of benefits from the system, which created by IMF, World Bank and GATT. Below are several advantages of the Bretton Woods system:The flexible exchange rate became more stable in many countries by maintaining the equilibrium of the internal and external of the standard at the situation.
Help for the economics growth of the countries and maintains the economic stabilizations including balance of trade, service and payments in the proper level by the monetary policy autonomy.
The conference helps in the expansion of international trades and investment especially to the developing countries after the Second World War.
The system provided the benefits to the employees because the governments are aims to increase the productivities of their countries as much as possible.
At the same time, the advantages of the system had brought disadvantages which linked to the economics of the country during and after the developing, such as:
Risk of exchange rate, which is too volatility (more frequent and over needed).
Use too much of expansion of monetary policy which can create the higher inflation rates. The more frequent the policy use, the higher the inflation increases.
The disadvantages of the Bretton Woods Conference had considered as one of the factors that leads to the end of the system.
The end of the Bretton Woods systems
When the economics of European and Japan had recovered, United State of America faced the big problem of deficit from payments also the international reserves of the country decreased by 13 billions and it caused the US dollar starting to drop.
The European central bank had try to solve the problem of low rate in the US dollar by took some of the spare dollars exchange with the reserved gold and also reduced the exchange activity of dollars to gold. Moreover, the government designed to announce the measure for import tax that is 10%. Therefore, the price of the gold rose from $35 to $42.22 in order to prevent the quick loss of the gold in the central bank.
However, this solution did not make any changes to the economics and there were still some speculation. Therefore the floating exchange rate system had created. On April 1973, the gold standard had canceled and the floating exchange system had certified as the formal system in the united state which still using now. The floating exchange systems are more protected the exchange rate from the economics conditions of other countries and these system allowed other countries to choose their own exchange rate system.
Conclusion
To sum up, The Bretton woods conference was one of the most important financial events in the economics history that took place in the Bretton woods in the united state during the period of interwar. The aims were to introduce to the new financial systems, which will help to develop the economics of some countries after World War II and create an international basic of exchanging the currency. The conference gathered 730 delegates from 44 countries for 21 days from 1 to 22 July 1944.
References
2001-2009.state.gov. (2015). The Bretton Woods Conference, 1944. Retrieved 25 July 2015, from http://2001-2009.state.gov/r/pa/ho/time/wwii/98681.htm
Marxists.org. (2015). Glossary of Events: Br. Retrieved 26 July 2015, from https://www.marxists.org/glossary/events/b/r.htm
Rates, T. (2015). The Advantages and Disadvantages of Flexible Exchange Rates - For Dummies. Dummies.com. Retrieved 26 July 2015, from http://www.dummies.com/how-to/content/the-advantages-and-disadvantages-of-flexible-excha.html
TIME.com. (2008). Breaking News, Analysis, Politics, Blogs, News Photos, Video, Tech Reviews - TIME.com. Retrieved 26 July 2015, from http://content
The improper banking activity of that time caused that commercial banks took too much risk with the d
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