As World War II came to an end, world leaders met at Bretton Woods, New Hampshir
ID: 1228327 • Letter: A
Question
As World War II came to an end, world leaders met at Bretton Woods, New Hampshire in 1944 to establish an international monetary system. The system established pegged the U.S. dollar to gold at $35.00 an ounce and pegged the other currencies of the developed world to the U.S. dollar at a fixed rate. This system lasted until 1971. Today the currency system operates more or less on a floating rate system of fiat currencies.
How might you explain the evolution of the international monetary system and currency exchange rates? Is the system effective in both its past and current forms? What is the effect of currency exchange rates on the global business environment?
Explanation / Answer
We know that an international monetory system consist of rules,practices, instruments,facilities and organisations for effecting international payments. After the collapse of bretton wood system the new system is necessary for the improvement of international monetary system. Then in 1972, the globe was constituted new committe called Committee of twenty.Here they can discuss three weakness of Bretton wood system. That is,Liquidity, Confidence and adjustments. After the approval of C20,the following important changes are made. That is,
1. The replacement of SDR in place of gold as a reserve asset system. Also the official price of gold has been abolished and the restrictions on its sales in the open market will be removed.
2. They can create new credit facilities. Includes, CFF, BSFF, EFF,SFF,etc.
3. Most importantly the present international monetary system , the member countries are allowed either to float or peg their currencies. The exchange rate of one currency may be pegged to the currency of a particular country. That means the exchange rate is not fixed in terms of gold.
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