Explain Bretton Woods Agreement

That is why the Bretton meeting was fundamentally in favour of the simple formalization and conclusion of the agreements previously adopted. Reinhart and Rogoff (2009) argue that the decline in tax revenues due to lower output, increased by expansionary government spending, accounts for the increase in deficits and debt more than the bailouts themselves. Laeven and Valencia (2012) propose a rough measure that separates the increase in debt related to bailout measures and resolution operations, and a remaining part due to discretionary and automatic budget expansion. In their sample, the median increase in the debt ratio following a crisis is 12 percentage points, the majority (6.8) due to budgetary bailouts. There are 21.4 and 3.8 for industrialized countries, 9 and 10 in emerging countries. Findings should recognize this fact and historical record should be evaluated in light of these data. These two financial institutions contributed significantly to the faith in the Bretton Woods agreement and, even after the agreement no longer existed, these two institutions were not dissolved. The Bretton Woods system is a series of uniform rules and guidelines that have provided the framework for the creation of fixed international exchange rates. Essentially, the agreement called on the new IMF to set the fixed exchange rate for currencies around the world. Each country represented assumed responsibility for maintaining the exchange rate, with incredibly narrow margins above and below. Countries struggling to stay within the fixed exchange rate window could ask the IMF for an adjustment in interest rates for which all allied countries would then be responsible. Another objective of the agreement was to avoid any form of trade war. THE financial crises of US President Richard Nixon led to the end of the Bretton Woods system.

During these years, the foreign dollar exceeded the value of U.S. gold reserves at Fort Knox and elsewhere. This undermined the premise of the agreement, namely that the United States could still support its dollars with its gold equivalent. The agreement also aimed to remove all forms of exchange restrictions and to create a new efficient payment system for multilateral trade transactions between Member States. As they study to boost an international career in finance, experts learn about the effects of international agreements such as Bretton Woods and the institutions they have created. Developing a strong international financial strategy means anticipating the impact of central bank announcements and actions, managed in the same way by national governments and international bodies. The essence of the agreements was that the IMF would help Member States manage the balance of payments in a manner consistent with stable exchange rates and would provide loans if necessary.