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Paper Topic:

In what ways if any did the role of the U.S dollar under the Bretton woods system differ from from the role of gold under the fixed exchange rate system

In what ways if any did the role of the U .S dollar under the Bretton Woods system differ from the role of gold under the fixed exchange rate system

Introduction

The Bretton Woods system was created in July 1944 with the Bretton Woods Agreement signed by 730 delegates from 44 Allied nations at the Mount Washington Hotel in Bretton Woods , New Hampshire . The system established a new way of international economic management and set the background for commercial and financial relations among global industrialised powers

The international financial system

in those years circulated around the US dollar that performed a function similar to that assigned to gold in the years of the gold standard . However , the individual currency could assume the role held by the precious metal , which eventually led to the collapse of the system in 1971 . Bretton Woods system , however , held for over two decades , requiring a great amount of international cooperation and submission of national sovereignty to the international authority The Bretton Woods financial management system envisaged international cooperation in the unprecedented form of the permanent financial institutions , the International Monetary Fund and the International Bank for Reconstruction and Development

The Role of the US Dollar

The dollar under the Bretton Woods system was tied in value to gold . The United States committed to exchanging an ounce of gold for 35 Roosevelt believed in pegging the currency to gold so as to boost faith in the US currency . The dollar turned out to be the main reserve asset performing a function analogous to that of gold . Many nations came to be dependent on the state of the US economy and the nation 's balance of payments since they began to hold their reserves in US dollars

One can argue that the Bretton Woods was another variation of the gold standard . This standard means that currency is evaluated in terms of gold , is tied to the value of gold . Under the Bretton Woods system , only foreign central banks were allowed to exchange US dollars for gold Ordinary citizens were prohibited from doing so , mainly because the authorities of the nation wanted to get rid of surplus liquidity Roosevelt 's administration did not want Americans rushing to the Treasury to exchange the surplus of money they had for gold instead they wanted this liquidity to flow back into the market

Thus , the Bretton Woods system changed the role of the dollar in that it no longer allowed ordinary American citizens to exchange surplus dollars for gold . In fact gold continued to be the main underlying value behind the money banknotes , the dollar was only allowed to replace gold as a more convenient and easily available vehicle . However , the link between gold and dollar was limited because the number and scope of entities allowed to exchange dollars for gold was limited

The major role given to the dollar was caused by the dominance of the US , both political and economic . At that point , the US produced more than half...

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