Bretton Woods Agreement and System

The Bretton Woods Agreement was a set of agreements signed at the United Nations Monetary and Financial Conference held at Bretton Woods, New Hampshire, United States, in 1944. The Bretton Woods system was the first formal international monetary system established after the Second World War. The Bretton Woods system was a system of fixed exchange rates between the world's major currencies. The system was based on the US dollar, which was pegged to gold at $35 per ounce. Other currencies were pegged to the dollar at fixed rates. The Bretton Woods system was designed to promote international trade and economic growth.

The Bretton Woods system worked well for the first few years after its establishment. However, in the early 1970s, the system began to break down. The main reason for the breakdown of the Bretton Woods system was the United States' increasing balance of payments deficits. The United States' balance of payments deficits meant that it was losing gold reserves. In order to maintain the fixed exchange rate between the dollar and gold, the United States had to sell gold from its reserves. By 1971, the United States had lost so much gold that it could no longer maintain the fixed exchange rate between the dollar and gold.

In August 1971, President Richard Nixon announced that the United States would no longer convert dollars to gold. This effectively ended the Bretton Woods system. The Bretton Woods system was replaced by a system of floating exchange rates.

The Bretton Woods system had a number of positive effects. It helped to promote international trade and economic growth. It also helped to stabilize the international monetary system. However, the Bretton Woods system also had a number of negative effects. It was inflexible and could not adapt to changing economic conditions. It also led to the United States' increasing balance of payments deficits.

The Bretton Woods system was a major step forward in the development of the international monetary system. However, it was not perfect and it eventually broke down. The Bretton Woods system was replaced by a system of floating exchange rates.