The Bretton Woods Agreement was one of those turning points in the development of modern financial systems that established the dollar as the default currency for world trade after World War II. While the Bretton Woods system gradually disintegrated under the Nixon administration, the financial institutions created by the agreement – the International Monetary Fund and the World Bank – remain permanent elements of 21st century finance. By 1968, the attempt to defend the dollar with a firm peg of $35 an ounce, the policies of the Eisenhower, Kennedy and Johnson administrations, had become increasingly untenable. U.S. gold outflows accelerated, and although Germany and other countries pledged to hold gold, the Johnson administration`s unbalanced fiscal spending had turned the dollar shortage of the 1940s and 1950s into a flood of dollars in the 1960s. In Rio de Janeiro in 1967, the IMF agreed to replace the tranche division established in 1946. Special Drawing Rights (SDRs) were set at one U.S. dollar, but could not be used for transactions other than between banks and the IMF. Countries were required to accept SDRs in the amount of three times their allocation, and interest would be charged or credited to each country based on its participation in the SDRs. The initial interest rate was 1.5%. The agreement does not provide for the creation of international reserves.
He assumed that a new production of gold would suffice. In the case of structural imbalances, it expects national solutions, such as an adjustment in the value of the currency or an improvement in a country`s competitive position by other means. However, the IMF had few resources to promote such domestic solutions. The agreement also aimed to eliminate all forms of exchange rate restrictions and to create a new efficient payment system for multilateral trade transactions between member countries. As they study to pursue an international financial career, professionals learn about the impact of international agreements such as Bretton Woods and the institutions they create. Creating a sound international financial strategy means anticipating the impact of central bank announcements and actions managed by national governments and international bodies. Despite the disintegration, the Bretton Woods Summit and the agreement are responsible for a number of aspects of particular importance in the financial world. First of all, there is the creation of the IMF and the World Bank. These two institutions are still of crucial importance to the global economy today. The main objective and objective of the agreement was the introduction of a monetary system that was not as rigid as the gold standard, but as stable as the gold standard. Below is a brief summary of why the world`s economies became part of the Bretton Woods system, how the system worked, why it failed, and the impact of the agreement on the development of the international monetary system.