Post-war world capitalism suffered from a huge shortage of dollars. The U.S. ran huge trade surpluses, and U.S. reserves were huge and growing. This river had to be reversed. Although all countries wanted to buy U.S. exports, the dollars had to leave the U.S. and become available for international use to do so. In other words, the US should reverse the imbalances in global prosperity by posting a trade deficit financed by an outflow of US reserves to other countries (a US budget deficit). The United States could suffer from a financial deficit by importing, building factories or donating to foreign countries. Remember that speculative investments were prevented by the Bretton Woods agreements. Importing from other countries was not attractive in the 1950s, as American technology was up to date at the time. So the multinationals and the global aid that comes from the United States.

Budding. [29] Nazi Germany also cooperated with a bloc of controlled nations until 1940. Germany forced its surplus trading partners to spend this surplus on imports of products from Germany. [8] Thus, Britain survived by keeping the surpluses of the pound sterling in its banking system, and Germany survived by forcing its trading partners to buy its own products. The United States feared that a sudden drop in war spending would bring the nation back to the unemployment levels of the 1930s, and therefore wanted pounds sterling and everyone in Europe to be able to import from the United States, so the United States supported free trade and the international convertibility of currencies into gold or dollars. [9] The experience of the Great Depression, when the spread of exchange controls and trade barriers led to economic catastrophe, was still fresh in the minds of officials. Bretton Woods planners hoped to avoid a repeat of the debacle of the 1930s, when exchange controls undermined the international payment system that formed the basis of world trade. The ”beggar your neighbor” policy of 1930s governments—which used currency devaluations to increase the competitiveness of a country`s export products in order to reduce balance of payments deficits—exacerbated domestic deflationary spirals, leading to falling domestic incomes, falling demand, mass unemployment, and a general decline in world trade.

In the 1930s, trade was largely limited to currency blocks (groups of nations using an equivalent currency, such as the ”sterling zone” of the British Empire). These blocs have delayed international capital flows and foreign investment opportunities. Although this strategy has tended to increase government revenues in the short term, it has significantly worsened the situation in the medium and long term. Powerful countries strongly agree that the failure to coordinate exchange rates in the interwar period exacerbated political tensions. This facilitated the decisions of the Bretton Woods Conference. In addition, all Bretton Woods governments agreed that the monetary chaos of the interwar period had brought valuable lessons. The Group of Ten met in December 1971 at the Smithsonian Institution in Washington D.C. and signed the Smithsonian Agreement. The U.S. has pledged to fix the dollar at $38 an ounce with trading margins of 2.25 percent, and other countries have agreed to revalue their currencies against the dollar. The group also planned to balance the global financial system through special drawing rights only.

Officially founded on the 27th. In December 1945, when the 29 participating countries signed their articles of agreement at the Bretton Woods Conference, the IMF was to be the guardian of the rules and the main instrument of international public administration. The Fund began its financial activities on March 1, 1947. IMF approval was required for any exchange rate changes greater than 10 per cent. It advised countries on policies affecting the monetary system and lent reserve currencies to countries that had taken on balance of payments debt. The IMF`s modest credit facilities were clearly not sufficient to deal with Western Europe`s huge balance of payments deficits. The problem was exacerbated by the IMF`s reaffirmation in the Bretton Woods Articles of Agreement that the IMF could only lend for current account deficits and not for capital and reconstruction purposes. Only the United States contribution of $570 million was actually available for IBRD loans. Since the only market available for IBRD bonds was the conservative Wall Street banking market, the IBRD was forced to pursue a conservative lending policy that only granted loans when repayment was secured. Faced with these problems, the IMF and the IBRD itself admitted in 1947 that they could not cope with the economic problems of the international monetary system. [30] Several authors have extended the first- and second-generation models to include the specifics of the Asian crisis, including moral hazard (guarantees), short-term foreign currency borrowing, and currency devaluation.

Krugman (1998) argued that the monetary and financial crisis in Asia reflected the role of moral hazard as a precursor to financial instability, which in turn was one of the main causes of currency crises. According to its history, financial institutions in these countries made risky loans assuming they would be saved, while financing themselves with offshore loans close to international interest rates. Capital inflows and loans to domestic banks fueled a boom in asset markets, which encouraged banks to lend more. This process has fostered a boom in domestic investment and consumption and a growing current account deficit. When external factors showed that the exchange rate was overvalued, a classic speculative attack led to a devaluation. The devaluation, in turn, triggered a financial crisis when banks` short-term foreign currency loans sprang up like mushrooms, making them both illiquid and insolvent. Bailouts of the financial system, and in particular their dollar liabilities, have triggered further speculative attacks and depleted the international reserves of the monetary authorities. On a much deeper level, when the Bretton Woods Conference was convened, most of the Third World remained politically and economically subordinate. These states, which were economically and politically linked – formally and informally – to the developed countries of the West, had little choice but to submit to the international economic system established for them. In the East, Soviet hegemony in Eastern Europe formed the basis of its own international economic system. At the time, the gaps between White`s and Keynes` plans seemed enormous.

Keynes, in his speech to the last plenary session of the Bretton Woods Conference on July 22, 1944, stressed the difficulty of creating a system that every nation could accept, stating that the new liberalized regime encouraged massive capital inflows that led to an increase in bank lending and fueled a boom in asset prices. A major bankruptcy in 1977 led to a bailout for fear of contagion. After that, the government again refrained from future rescue operations. The bailout that quickly followed encouraged moral hazard and the credit boom continued. At the beginning of 1982, more banks collapsed and their liabilities were guaranteed. This meant that the government had assumed a new contingent liability, which in turn led to a growing budget deficit. The central bank financed the deficit with the inflation tax. This led to inflation and set the stage for a speculative attack on its reserves.

In the summer of 1982, a major banking and monetary crisis ensued, prompting Chile to abandon its ties and nationalize its banking system. A debt crisis followed in 1983.k Bretton Woods then created a triangular trading system: the United States would use the convertible financial system to trade with developing countries for huge profit, develop industry and acquire raw materials. It would use this surplus to send dollars to Europe, which would then be used to rebuild their economies and make the United States the market for its products. This would allow other industrialized countries to buy products from the Third World, which would strengthen America`s role as a guarantor of stability. When this triangle was destabilized, Bretton Woods entered a period of crisis that eventually led to its collapse. To boost confidence in the dollar, the United States separately agreed to peg the dollar to gold at a rate of $35 per ounce. At this rate, foreign governments and central banks could exchange dollars for gold. Bretton Woods set up a dollar-based payment system that defined all currencies in terms of the dollar, which is itself convertible into gold and, most importantly, ”as good as gold” for trading. .


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