The Operation and Demise of the Bretton Woods System; 1958 to 1971

Wednesday, February 1, 2017

Economics Working Paper WP16116

Abstract: This chapter revisits the history of the origins, operation and demise of the Bretton Woods International Monetary System. The Bretton Woods system was created by the 1944 Articles of Agreement to design a new international monetary order for the post war at a global conference organized by the US Treasury at the Mount Washington Hotel in Bretton Woods, New Hampshire at the height of World War II. The Articles represented a compromise between the American plan of Harry Dexter White and the British plan of John Maynard Keynes. The compromise created an adjustable peg system based on the US dollar convertible into gold at $35 per ounce along with capital controls. It was designed to combine the advantages of fixed exchange rates of the pre-World War I gold standard with some flexibility to handle large real shocks. The compromise gave members both exchange rate stability and the independence for their monetary authorities to maintain full employment.

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