8/3/2019 The End of the Bretton Woods System

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The end of the Bretton Woods System(197281)

Video (3:29): Former U.S. President Richard Nixon announces end of dollar link to gold

U.S. gas station during the 1970s oil price shock.

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End of Bretton Woods system Nixon address 1973 oil crisis IMF chronology IMF Articles of Agreement IMF-World Bank library List of IMF managing directors

By the early 1960s, the U.S. dollar's fixed value against gold, under the BrettonWoods system of fixed exchange rates, was seen as overvalued. A sizable

increase in domestic spending on President Lyndon Johnson's Great Societyprograms and a rise in military spending caused by the Vietnam War graduallyworsened the overvaluation of the dollar.End of Bretton Woods systemThe system dissolved between 1968 and 1973. In August 1971, U.S. PresidentRichard Nixon announced the "temporary" suspension of the dollar's convertibilityinto gold. While the dollar had struggled throughout most of the 1960s within theparity established at Bretton Woods, this crisis marked the breakdown of the

http://en.wikipedia.org/wiki/Nixon_Shockhttp://www.nixonlibraryfoundation.org/clientuploads/directory/archive/1971_pdf_files/1971_0264.pdfhttp://en.wikipedia.org/wiki/1973_oil_crisishttp://www.imf.org/external/np/exr/chron/chron.asphttp://www.imf.org/external/pubs/ft/aa/index.htmhttp://external.worldbankimflib.org/external.htmhttp://www.imf.org/external/np/exr/chron/mds.asphttp://www.nixonlibraryfoundation.org/clientuploads/directory/archive/1971_pdf_files/1971_0264.pdfhttp://en.wikipedia.org/wiki/1973_oil_crisishttp://www.imf.org/external/np/exr/chron/chron.asphttp://www.imf.org/external/pubs/ft/aa/index.htmhttp://external.worldbankimflib.org/external.htmhttp://www.imf.org/external/np/exr/chron/mds.asphttp://en.wikipedia.org/wiki/Nixon_Shock

8/3/2019 The End of the Bretton Woods System

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system. An attempt to revive the fixed exchange rates failed, and by March 1973the major currencies began to float against each other.Since the collapse of the Bretton Woods system, IMF members have been free tochoose any form of exchange arrangement they wish (except pegging theircurrency to gold): allowing the currency to float freely, pegging it to another

currency or a basket of currencies, adopting the currency of another country,participating in a currency bloc, or forming part of a monetary union.Oil shocksMany feared that the collapse of the Bretton Woods system would bring theperiod of rapid growth to an end. In fact, the transition to floating exchange rateswas relatively smooth, and it was certainly timely: flexible exchange rates madeit easier for economies to adjust to more expensive oil, when the price suddenlystarted going up in October 1973. Floating rates have facilitated adjustments toexternal shocks ever since.The IMF responded to the challenges created by the oil price shocks of the 1970sby adapting its lending instruments. To help oil importers deal with anticipatedcurrent account deficits and inflation in the face of higher oil prices, it set up thefirst of two oil facilities.Helping poor countriesFrom the mid-1970s, the IMF sought to respond to the balance of paymentsdifficulties confronting many of the world's poorest countries by providingconcessional financing through what was known as the Trust Fund. In March1986, the IMF created a new concessional loan program called the StructuralAdjustment Facility. The SAF was succeeded by the Enhanced StructuralAdjustment Facility in December 1987.