I have a short and brief question about Bretton Woods System :

  1. In which way so called Bretton Woods system defined with which properties?

  2. What is the raison d'être of the Bretton Woods System?

This Question is under the notion of complicacy of Wikipedia page regarding the subject. I require to get the more reduced form of information that is dedicated to the essentials of it.

  • 1
    Is there something not covered in the wikipedia article? – justCal May 12 '17 at 0:05
  • I had read but cannot get the point of what it is, and how people consider this system actually in the level of intuition – Beverlie May 12 '17 at 0:15
  • 2
    Question Edited following your critic – Beverlie May 12 '17 at 1:21

From the wikipedia article:

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate (± 1 percent) by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.

1) Bretton Woods required the participants to maintain a monetary policy that resulted in a relatively stable exchange rate.

2) Below the international coordination of exchange rates was a gold standard.

3) supporting the system was the IMF's ability to make temporary loans to assist countries to fulfill their obligations.

Why is this important? Because it is international coordination to maintain stable exchange rates and to prevent devaluation/deflation. If I go much beyond that, I enter the realm of rhetoric (it is difficult for me to conceal my contempt for currency based on specie, and this is not the appropriate venue for my bile.)

To fully understand Bretton Woods, you're going to need to understand monetary policy, and the dangers of deflation. The best short summary is that the amount of currency in a country must be coupled to the amount of production - if one country outproduces another, currency will flow to the producing country. Prior to Bretton Woods, this had been solved by arbitrage, but there are some undesirable features of arbitrage.

Monetary policy without coordination can result in a "race to the bottom" phenomenon in everyone looses; the winner merely loses less. Coordinating monetary policy avoids this failure mode.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.