bretton woods & the imf

8/2/2019 Bretton Woods & the IMF

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Bretton Woods & the IMF


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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


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1. Bretton Woods


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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


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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


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Harry Dexter White VS John Maynard Keynes


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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


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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


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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


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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


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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


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2. The International Monetary Fund


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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


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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


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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


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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

bretton woods & the imf

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