Why the Bretton woods system was needed?

Gold Standard is a monetary system of the standard economic unit of account is based on a fixed quantity of gold, and the most countries were used until World War I. However, during the period of World War I. However, during the period of World War I, a lot of countries need print more currency to pay for their war costs, Thus, the supply of money over than the demand, and the value of money declined dramatically. For instant, like Kimberly(2012) said that "people needed wheelbarrows full of cash just to buy a loaf of bread.". If the supply was much more than the demand,which can be called hyperinflation.

In fact, many countries faced the problem of economic depression before 1944. For example, after World War II, European countries needed to print more currency to rebuild their country. In order to avoid hyperinflation, Euro countries were ready to abandon a pure gold standard. At that time , the Great Depression also let the government of United States give up the gold standard. The reason why many countries wanted to quit Gold Standard was that the Gold Standard had impeded the development of country. Therefore, they tried to find a system replace the Gold Standard.


Obviously, Bretton Woods System has some advantages that the Gold Standard do not have. First of all, according to Stephey, "its gave countries more flexibility than a strict adherence to the Gold standard, but less volatility than no standard at all."(Stephey 2008). Therefore, a member country still retained the ability to alter its currency's value if needed to corect a "fundamental disequilibrium" in its current account balance.. Secondly, the barrier of international trader between countries has reduced. A case in point is traders do not need to care about which kind of currency they need to used because U.S. dollar has become a global currency. Finally, the establishment of IMF and WB help country ensure stability in the international system and provide a vital souce of financial and technial assistance to developing countries around the world.

General introduction of Bretton Woods System

Bretton Woods system is an agreement of monetary management, which established the rules for commercial and  financial relations among the world's major industrial countries in the mid-20th century. There are about 730 delegates from 44 countries who discussed the development of world trade after the  second World War in Bretton Woods, New Hampshire, United States in 1944.Thus, the agreement is called Bretton Woods system. and the video below shows the meeting;



There are three key points in this system. Firstly, the power of U.S. dollar. U.S.dollars have become a unique global currency in the world, while other countries have adopted a monetary policy to maintained the exchange rate by exchanging its currency to the U.S. dollar.Meanwhile, U.S. dollar is related to the gold, 35 dollar is equivalent one ounce of gold. Secondly, two institutions established during the period when the system was functioning,that is  International Monetary Fund (IMF) and World Bank(WB). Both IMF and WB play a significant role on the development of world economics, even after the collapse of Bretton Woods system. Thirdly, adjustable fixed exchange rate, the exchange rate of other currencies to U.S.dollars can only fluctuate within 1%, which is so call official exchange rate. if the exchange rate is over the official rate, the local government has the responsibility to maintain the exchange rate stable.

Obviously, USA is the biggest winner after the announcement of Bretton Woods system, and the power of U.S.dollar had become unprecedented. In my point, the system is not only the symbol of prosperous of United States economics, but also a method that many countries attempt to develop the world economics and trade after the collapse of Gold standard.