Why Did The Bretton Woods Agreement Collapse

We can learn a lot about the planned operation of the system by looking at the collapse of the system. The collapse was mainly because the United States would not allow its domestic policy to be compromised in the name of the fixed exchange rate system. Here is a brief report on what happened. For a more detailed description, see Barry Eichengreens Globalizing CapitalBarry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton, NJ: Princeton University Press, 1996). and Alfred Eckes A Search for Solvency.Alfred E. Eckes Jr., A Search for Solvency (Austin, TX: University of Texas Press, 1975). One of the main reasons for the collapse of Bretton Woods was the inflationary monetary policy unsuitable for the key monetary country of the system. The Bretton Woods system was rules-based, the most important of which was to implement monetary and fiscal policy in line with official commitments. The United States violated this rule after 1965 (Bordo 1993). Post-war global capitalism suffered from a huge shortage of dollars. The U.S. had huge trade surpluses and U.S.

reserves were huge and growing. It was necessary to reverse this river. Although all nations wanted to buy U.S. exports, the dollars had to leave the United States and be available for international use so that they could do so. In other words, the United States should reverse global prosperity imbalances by chartering a trade deficit financed by the U.S. outfed of reserves to other nations (a deficit in the U.S. fiscal balance). The United States could have a financial deficit, either by building plants, or by building plants, or by foreign nations. Remember that speculative investments were discouraged by the Bretton Woods agreement. Imports from other nations were not attractive in the 1950s because American technology was up to date at that time. This is how multinationals and global aid from the United States originated.

[29] Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange agreement (except for the gold link of their currency): allowing the currency to float freely, linking it to another currency or basket of currencies, accepting the currency of another country, participating in a currency bloc or being part of a monetary union. The agreement did not promote the discipline of the Federal Reserve or the U.S. government. The U.S. Federal Reserve expressed concern about a rise in the domestic unemployment rate due to the depreciation of the dollar.