The Bretton Woods system established a new monetary order. The name comes from the location of the meeting where the agreements were drawn up, Bretton Woods, New Hampshire. This meeting took place in July 1944. The Bretton Woods System was an attempt to avoid worldwide economic disasters, such as The Great Depression that began in 1929 and that continued for about ten years.
What did Bretton Woods set out to accomplish?
The purpose of the Bretton Woods meeting was to set up a new system of rules, regulations, and procedures for the major economies of the world to ensure their economic stability. To do this, Bretton Woods established The International Monetary Fund (IMF) and the World Bank.
The IMF's primary aim was to:
- foster global monetary cooperation
- achieve greater financial stability
- facilitate international trade
- reduce unemployment and poverty
- promote sustainable economic growth
The World Bank has a similar mission, concentrating its efforts on:
- eliminating extreme poverty
- promoting means of sharing prosperity
Bretton Woods and the Gold Standard
Bretton Woods also established the U.S. Dollar as the world's reserve currency. From 1944 until 1971, all major world currencies were pegged to the dollar, while the dollar itself was pegged to gold, a relationship popularly known as "the Gold Standard."
Alarmed by the outflows of gold from the U.S., Richard Nixon abandoned the Gold Standard in 1971. From that year forward, the world's currencies were all floating, with no one currency having a fixed value -- a circumstance that led to the establishment of foreign exchange markets: the forex.
Did Bretton Woods succeed in achieving its goals?
In one way, it ultimately did not; since the abandonment of the gold standard, all world currencies float against one another -- a situation inherently less stable than the preeminence of the U.S. Dollar from 1944 until 1971.
Aside from the abandonment of the establishment of the Bretton Woods-initiated gold standard, there is no clear answer to the question. Both the World Bank and the IMF exist today -- itself a remarkable achievement in a volatile world -- but they are widely criticized.
These criticisms center around the procedures and approaches taken by both institutions. The shared purpose of the IMF and the World Bank can be seen as helping the world's weakest economies and lessening the gap between affluence and poverty worldwide. Few commentators object to these goals. But both institutions have been accused of operating in ways that not only do not achieve these goals, but that worsen the conditions of the economies they ostensibly aim to improve. The World Bank, for instance, has often attached conditions to the loans extended to countries in severe need of an economic helping hand that its critics maintain have increased unemployment and destabilized national economies.
The economic prescriptions (and loan requirements) offered by both institutions have often been seen as being insensitive to a debtor country's individual social and economic circumstances. The relationship between the IMF and World Bank and Greece is one example often cited by the institutions' critics. Whether the IMF and World Bank actually caused an increase in Greek poverty during the period beginning in 2008, there is little doubt that as of 2016, the economic situation in Greece has not improved. There have been systemic bank and business failures and unprecedented unemployment.
No doubt some of the criticism is deserved. Beyond that, however, is another even larger issue: is it morally defensible for the richest countries in the world to assume the right to arrange the affairs of smaller countries by effectively depriving them of their economic autonomy? That is a question floating above all others when examining the consequences of the Britton Woods Agreements and the institutions it inaugurated.