What Is The Bretton Woods Agreement Created

The Bretton Woods Agreement was a financial agreement negotiated in 1944 towards the end of World War II. The Allies met in Bretton Woods, New Hampshire, to discuss the international economy. During the negotiations, they agreed to set the value of the us dollar against the value of gold and to attach it to the currencies of other countries to the U.S. dollar. The agreement also created the International Monetary Fund (IMF). The Bretton Woods system remained in place until the end of the U.S. gold standard in 1971. The price to pay for this position – particularly in the Cold War climate – was the militarization of the American economy, what U.S. President Dwight D. Eisenhower called “the arms industry” and “the military-industrial complex,” and the resulting idea that the United States should play a protective role in what is called the “free world.” In retrospect to the origins of the Cold War, he lamented, in a document written by Harry Dexter White at the time of his death, the “tensions between certain great powers” that had “almost catastrophic” consequences, including an “acute lack of confidence in the continuing political stability and the crippling fear of war to an unprecedented extent and almost unimaginable in its destructive potential.” 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 system is a series of uniform rules and guidelines that have provided the framework for the creation of fixed international exchange rates. Essentially, the agreement called on the new IMF to set the fixed exchange rate for currencies around the world. Each country represented assumed responsibility for maintaining the exchange rate, with incredibly narrow margins above and below. Countries struggling to stay within the fixed exchange rate window could ask the IMF for an adjustment in interest rates for which all allied countries would then be responsible.