Bretton Woods Conference

• The Bretton Woods Conference, officially known as the United Nations Monetary and Financial Conference, was held in July 1944 in Bretton Woods, New Hampshire, USA.
• Its main aim was to reconstruct and stabilize the global economic order after the devastation caused by World War II.
• Delegates from 44 allied nations came together to design a new international monetary system that would:
  • Ensure economic stability
  • Prevent future global financial crises like the Great Depression
  • Promote free trade and cooperation among nations

Key Outcomes of the Bretton Woods Conference

Creation of Bretton Woods Institutions

• Two major institutions were established as a result of this conference:

International Monetary Fund (IMF):

• Purpose: To ensure the stability of the international monetary system.
• Functions:
  • Provide short-term financial assistance to countries facing balance of payments crises
  • Maintain exchange rate stability
  • Promote international monetary cooperation
  • Monitor global economic trends and provide economic advice.

International Bank for Reconstruction and Development (IBRD) – now part of the World Bank Group:

• Purpose: Initially to help Europe rebuild after World War II.
• Now known as the World Bank, its role evolved to:
• Provide long-term loans and development aid to developing and underdeveloped countries
• Encourage sustainable economic development
• Support infrastructure projects, education, healthcare, and poverty reduction

Establishment of a Fixed Exchange Rate System

• The Bretton Woods system introduced a fixed exchange rate regime, where:
• Countries agreed to peg (fix) the value of their currencies to the US Dollar, and
• The US Dollar was convertible to gold at $35 per ounce

Why this system?

• It was designed to provide currency stability, avoid competitive devaluations, and encourage international trade and investment.

However:

• The system came under pressure in the 1960s due to:
  • Rising US inflation
  • Trade deficits
  • Increasing demand for gold
• In 1971, US President Richard Nixon suspended the convertibility of the dollar into gold, effectively ending the Bretton Woods gold standard.
• By 1973, the system collapsed and countries shifted to a floating exchange rate system, where currency values are determined by market forces.

Promotion of Free Trade and Economic Cooperation

• One of the key philosophical goals of the Bretton Woods Conference was to promote global economic prosperity and peace by encouraging free and fair trade.
• This led to the creation of multilateral trade agreements and eventually the formation of the:
  • General Agreement on Tariffs and Trade (GATT) in 1947
  • World Trade Organization (WTO) in 1995

Legacy and Significance

• The Bretton Woods Conference laid the foundation of the modern global economic system.
• It promoted global financial stability, economic cooperation, and international development.
• Institutions like the IMF and World Bank continue to play crucial roles in:
  • Providing loans and policy advice to countries in crisis
  • Supporting sustainable development goals
  • Facilitating global economic integration