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Bretton Woods Conference

Bretton Woods Conference :

The first half of the 20th century witnessed many issues, such as, the First World War, 1929 Wall Street crash, the great depression, the Second World War and most importantly, the failure of the Gold Standard System. Many nations across the globe faced financial crisis, and this led to the policy makers to address these international financial issues. After the Second World War, in 1944, 44 Allied nations met at Bretton Woods, in New Hampshire of the USA. The Bretton Woods Conference has thus become an important milestone in the international banking system.

The main objectives of the new monetary order were:

– To establish an international monetary system with stable exchange rates

– To eliminate existing exchange controls

– To aim to bring convertibility of all currencies

The Bretton Woods Conference, created a new system popularly called as “Bretton Woods System”

Bretton Woods System paved the way for the formation of three important multilateral International institutions viz., –

– International Monetary Fund (IMF)

– International Bank for Reconstruction and Development (IBRD) – popularly known as “World Bank”

– International Trade Organization

Bretton Woods Systems –

The salient features of Bretton Woods system were :

• Each country was required to set a fixed value for its currency in terms of gold or the U S dollar .This value would be known as the par value of the currency

• The exchange rates between currencies would be determined on the basis of their par values.

• Minor fluctuations in exchange rates within a narrow band of 1 per cent above or below the central parity were permissible.

• Fluctuations beyond 1 per cent had to be corrected by the monetary authorities of the country through market intervention.

• In the event of any fundamental disequilibrium in the balance of payments , a country was free to readjust the par value of its currency .However , changes beyond 1 per cent of the existing par value in either direction required the consent and approval of IMF

• The U S Government fixed the par value of US dollar in terms of gold as US $ 35 per ounce of gold.

Further, the US Government agreed to convert the US dollar freely into gold at the fixed parity of US $ 35 per ounce of gold.

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