Financial Institutions: Launch of Bretton Wood Article

What was the purpose of the Bretton Woods conference in July 1944?

To design a postwar international monetary order and avoid destabilizing competitive devaluations.

What currency was the U.S. dollar pegged to under the Bretton Woods system?

Gold, at a rate of $35 per ounce.

What was a key provision of the IMF Articles of Agreement regarding currency devaluation?

Countries suffering from fundamental disequilibrium could be allowed to devalue their currency.

What major constraint did European countries face after WWII?

A 'dollar shortage' that limited their ability to import necessities.

How did the U.S. assist European countries in overcoming the dollar shortage?

By encouraging them to devalue their currencies relative to the dollar to boost exports.

What was the intended effect of the U.S. raising interest rates when losing gold reserves?

To make U.S. goods cheaper and reverse the balance-of-payments deficit.

When did the Bretton Woods system become operational?

In 1958, when exchange controls on current-account transactions were lifted.

What economic condition did the U.S. face in early 1960 after raising interest rates?

The U.S. entered a recession.

What measures did the U.S. implement to cope with international payment imbalances?

Capital controls, including limiting foreign direct investment and bank lending abroad.

What transformation occurred by 1968 regarding gold trades?

Central banks stopped open market gold trades, changing Bretton Woods from a gold standard to a dollar standard.

How did U.S. inflation affect foreign countries under the dollar standard?

Foreign countries had to inflate their domestic price levels in step with U.S. inflation.

What actions did President Nixon take in August 1971 regarding the gold standard?

Closed the gold window, imposed price and wage controls, and introduced a surcharge on imports.

What was the outcome of the Smithsonian agreement in December 1971?

The U.S. agreed to devalue the dollar by approximately 10% in exchange for other countries removing the surcharge.

What happened to the Bretton Woods system in early 1973?

Many countries allowed their currencies to float, effectively ending the Bretton Woods system.

What speculative pressure built against the dollar during the Bretton Woods system?

Pressure built as the U.S. kept running deficits and losing gold reserves.

What was a significant consequence of the U.S. running current-account surpluses but having large outward investments?

It led to overall deficits in the balance of payments and ongoing gold outflows.

What was the initial ideal regarding currency convertibility at pegged exchange rates after WWII?

Full currency convertibility was more of an ideal than a reality due to exchange controls.

What type of exchange rate system was envisaged by the founders of Bretton Woods?

A system of pegged exchange rates.

What was the intended function of the Bretton Woods system regarding gold?

To mimic the working of the gold standard, with currencies pegged to the dollar and the dollar pegged to gold.

What monetary policy action did the Federal Reserve take in response to gold outflows?

Raised interest rates to attract inflows of funds.

What was the impact of the US inflationary policy starting in 1964 on other countries?

Foreign countries had to inflate along with the United States to maintain their currency pegs.