Below is a brief summary of why global economies were part of the Bretton Woods system, how the system worked, why it failed, and what impact the agreement had on the development of the international monetary system. Modern economists can draw a perspective and insight from the discovery of their profession`s past. The Bretton Woods system was put in place as a more stable replacement for the gold standard under which all currencies were converted to gold. Under the new agreement, the dollar was the standard for international transactions, which were valued at one ounce of gold. The fact that the United States held a large portion of the world`s gold reserves allowed the dollar to play its new role as a standard currency on which the stock markets were based. The Bretton Woods Agreement was launched in 1944 at a conference of all allied nations of the Second World War. It took place in Bretton Woods, New Hampshire. There was broad consensus among powerful nations that the lack of exchange rate coordination during the interwar period had exacerbated political tensions. This facilitated the decisions of the Bretton Woods conference. In addition, all the Bretton Woods governments agreed that the monetary chaos of the interwar period had brought some valuable lessons.
The Bretton Woods countries have decided not to give the IMF the power of a global central bank. Instead, they agreed to contribute to a solid pool of national currencies and gold, which would be held by the IMF. Each member country of the Bretton Woods system then had the right to borrow as part of its dues, which it needed. The IMF was also responsible for implementing the Bretton Woods agreement. As chief international economist at the U.S. Treasury, Harry Dexter White designed the U.S. Cash Access Project in 1942/44, which rivaled Keynes` plan for the British Treasury. Overall, White`s system tended to favour incentives to create price stability in the world`s economies, while Keynes wanted a system that promoted economic growth. The “collective agreement was a huge international undertaking,” which took two years before the conference to prepare for it. It consisted of numerous bilateral and multilateral meetings to find a common basis for determining the policies that would be behind the Bretton Woods system. The agreement did not promote the discipline of the Federal Reserve or the U.S.
government. The U.S. Federal Reserve expressed concern about a rise in the domestic unemployment rate due to the depreciation of the dollar.