8/2/2019 Bretton Woods & the IMF
1/16
Bretton Woods & the IMF
8/2/2019 Bretton Woods & the IMF
2/16
Plan
1. Bretton Woods
a. Previous systemb. Conference of Bretton Woodsc. End of Bretton Woods
2. The International Monetary Fund (IMF)
a. Creation and roleb. Functioningc. Criticisms
CONCLUSION
8/2/2019 Bretton Woods & the IMF
3/16
1. Bretton Woods
8/2/2019 Bretton Woods & the IMF
4/16
Gold Standard
All currencies were to be
converted to a certainmass of gold
Fixed exchange rate
Disappeared and
reappeared with differentwars & crises
Finally stopped in the 30s
Previous system
8/2/2019 Bretton Woods & the IMF
5/16
Context
July of 1944
Last months of WW2 Need to set up a new
financial system
44 nations
Supremacy of the US thatheld 2/3 of the goldreserves
The Conference of Bretton Woods
8/2/2019 Bretton Woods & the IMF
6/16
Harry Dexter White VS John Maynard Keynes
8/2/2019 Bretton Woods & the IMF
7/16
Keynes proposition
Establishment of a world reserve currency called BANCOR
Administrated by a central bank, only institution to be able
to create money In case of balance of payments imbalances, both debtors
and creditors have to change their policies
Creditors import from deficit countries so that they can reach a trade
equilibrium
8/2/2019 Bretton Woods & the IMF
8/16
Harry Dexter White won!
US overwhelming economic powerled to the victory of Whites
proposition
The American interests prevailed atthat time
As a mainly creditor country, the US
could not agree with Keynes proposition
8/2/2019 Bretton Woods & the IMF
9/16
The Bretton Woods system
Establishment of the Gold Exchange StandardAll currencies were directly convertible into the most stable currency, the
USD, only currency to be directly convertible into gold
$35 for 1 ounce of gold
Pegged rate regimea fixed exchange rate was to bemaintained within 1% of parity (the band)
Avoid competitive devaluations that led to a deflationary spiral with badconsequences in the 30s
Control over exchange rates and balance of payments to be
done by the IMF
Creation of 2 major institutions: IMF and World Bank
8/2/2019 Bretton Woods & the IMF
10/16
Crises met by the system
Triffin dilemmaThe US had to respect a strict monetary discipline
with the dollar, as a reserve currency
But with the rise of free trade, they also had tosupply the world with currencies to fulfil the
increasing demand of dollars US gold reserves grew slowly in comparison
with expenditures (wars, Plan Marshallrefunds not sufficient to reduce theimbalance)
Confidence on USD as a reserve currencyeroded
Efforts were made under Kennedy, but notsufficient
8/2/2019 Bretton Woods & the IMF
11/16
End of the system
Nixon ShockCrisis of the 70s Nixon decided the end of convertibility
between USD and gold in 1971 +devaluation
Led by high inflation and Europeanpressure for currency supply
2nd devaluation + oil crisis in 1973
Snake in the tunnel 1st attempt topeg European currencies to oneanother ( 2,25%), but failed
Jamaica Agreement in 1976demonetization of gold officialised
8/2/2019 Bretton Woods & the IMF
12/16
2. The International Monetary Fund
8/2/2019 Bretton Woods & the IMF
13/16
Creation and role
Created during the Bretton Woodsconference
Roles Respect of the gold exchange standard and
the BW principles (until its end)
Avoid devaluations and revaluations (unlessit is necessary, then IMF decides)
Stimulate international trade
Help countries with financial difficulties
Reduce poverty
8/2/2019 Bretton Woods & the IMF
14/16
Functioning
Each member has to pay a quota share commensurate withits economic power
The voting power of each member also corresponds to thisshare (the US having the majority and the only countrypossessing a veto power)
When a member is granted a loan, it has to respect astructural adjustment program
8/2/2019 Bretton Woods & the IMF
15/16
Criticisms
Considered harmful to developingcountriesstructural adjustmentprogram and Washington Consensus
Support of dictatorships
Directors from rich countries only(protests from emerging countries)
Voting power held by the richsoIMF ruled by them
Inefficient methods to analyseeconomic performances2008 crisisnot anticipated
8/2/2019 Bretton Woods & the IMF
16/16
And now?
2008 crisis tackled the question of a
new financial system Maybe a new Bretton Woods as rose by N.
Sarkozy and G. Brown
Reforming the IMF? New governance (more power to emerging
countries and protection of the poorest)
Better methods to analyse economicevolutions
CONCLUSION
Top Related