The Bretton Woods was a monetary system that came into existence in the year 1944. This monetary system also entailed an exchange rate system. This system was formed by at least 44 countries. Most of these countries came from European countries at the very time the Second World War was taking place.
After the convention of the Bretton Woods meeting, major monetary formations emerged, and they include the International Monetary Fund (IMF), the International Bank for Reconstruction and the Development (IBRD). The Bretton Woods system was convened to ensure that the financial needs of the European continent were addressed.
For example, the Bretton Woods system advocated for the use of convertible currencies that could be used for international trade. Also, the Bretton Woods agreement was to address the reconstruction and development of the region after the destruction caused by the Second World War. In this respect, the gold was to serve as the base reserve currency.
This means that monetary currencies were pegged to gold. As a result, the United States dollar grew instability and was perceived to be the most stable currency at the time. The United States dollar became the reserve currency from a global perspective, and its value was proportional to the price of gold.
Moreover, the Bretton Woods system oversaw the need of the IMF to act as the authority behind controlling the balance of payments in the European countries and their allies. The above description of Bretton Woods’s system implies an old global financial system that was deemed to control the exchange rate between currencies.
From the onset of the Bretton Woods agreement, it was agreed upon that the United States dollar could act as the currency for exchange in international trade. The agreement also addressed the regional and global economy and was a great help to both developed and developing countries, as key financial institutions lend financial aid to developing countries.
Moreover, the global economic imbalances were to be offset by Bretton Woods’s financial institutions. As time progressed, more complex global economic and financial crises became rife. The Bretton Woods agreement collapsed, and new strategies and institutions were established to address the same issues.
The battle for Bretton Woods is a vivid description of how various economic and political challenges can be significant in shaping new order of financial markets in the world (Steil 1). The battle of Bretton Woods is a description of how world super economies like the United States and Britain get entangled in a battle of both the economy and political supremacy.
Instead of the intrigues that were evidenced between the two countries after the post-war economic and political turmoil, the new world order has been a critical focus in ensuring that countries remain economically and politically stable. Today, major shifts have taken place in replacement of the Bretton Woods monetary system. An example of such is the replacement of the IBRD with the World Bank.
As indicated earlier, there has been a growing demand for more strategies related to international economics. The recent economic recession in the year 2008, is evidence enough that same economic troubles that led to the formation of Bretton Woods agreement still exist. The impact from the recession was global and oversaw a trail of economies failing miserably.
This was witnessed in European countries, especially in Italy and Greece. In this regard, most of the modern views on the same have proposed a need to review the roles of the IMF and the World Bank. The establishment of the European Union and the G20 nations, as well as the APEC, has seen a new shift of ideologies. For example, countries are now adapting to the concept of economic nationalism or protectionism.
This can be edified by the fact that some countries like China and some in the African continent were not hit hard by the economic crunch of the year 2008. After the fall of the Bretton Woods, new strategies to ensure that the United States currency remained an international reserve currency were established. This oversaw a need to form G7, a group of world economic superpowers.
Moreover, this was to be reinforced by the creation of the world trade organization (WTO) to push for international co-operation as far as foreign exchange rates are concerned. However, with increased demand for monetary prices, the G7 expanded to G20 to ensure that more countries came together to have a common goal in exchange rates stabilization.
The failure of the United States, through the Federal Reserve to control inflation led to some European countries forming the European Union to protect their regional interests. The European Union further established a regional currency that was to replace the use of the United States dollar in stabilizing currency exchange rates. The European Union through the euro was also to become a huge lender to member countries as well as developing countries.
As indicated earlier, the failure of the global gold standard could have been triggered by a need by nations to have a protectionist strategy. The protectionism policy ensures governments control monetary policy through their respective central banks. The banks use tariffs and restrictive quotas to ensure a country experiences a favorable balance of payment.
Their monetary policy overrules that of international monetary institutions and highly contradicts the principle of free trade. This strategy has worked for other countries that do not want to fail as a result of the failures of the United States dollar. A recent economic war between China and the United States was an example of two countries trying various mechanisms in trying to protect their respective economic needs.
China had devalued its currency in a bid to be competitive and as a reaction to the growing economic trend witnessed in developing countries. However, the United States views such as unhealthy competition strategy. It took an international intervention from the European Union to amount pressure on China to stop its devaluation program to allow fair trade competition.
Such protectionism strategies will be viewed in the future, as more economies try to stabilize economically on their own. Consequently, this has triggered a reverse reaction in developed countries that have continually supported developing countries through loans and grants. The counter-effects of such offers are devastating if not controlled.
In conclusion, the current financial trends and monetary conflicts between nations will continue. This will not be as a result of a need to be a global economic power but as a reaction to the increasing economic growth in developing countries. The needs to have regional trade blocks will further be evidenced as a need for fair trade among countries continue to be a major focus. Nonetheless, economic and political turmoil will continue to remain a global challenge.
Work Cited
Steil, Benn. The battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the making of a new world order. New Jersey: Princeton University Press, 2013. Print.