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Bretton Woods System

Autor:   •  April 11, 2012  •  Essay  •  263 Words (2 Pages)  •  1,265 Views

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Bretton Woods System

After the end of the Gold Standard system, a new international monetary regime was necessary in a postwar world. That is why the Bretton Woods System came to regulate the monetary relations between countries, based on the US dollar.

But, a lot of mistakes brought the system to an end, even very similar to those committed during the Gold Standard. But I think the fundamental mistake was resting in the U.S. economy because it was created a hegemonic monetary regime centered on the dollar, as was done in England at the time of the gold standard. Added to this is difficult to balance domestic interests with international interests to create a collective responsibility because each country tends to look after their own interests. But the dependence of the international monetary regime in the U.S. economy was such that the survival of the system was based on the deficit of this country to avoid a liquidity problem. Finally what is generated is the Triffin Dilemma, because while in the best position is the dollar, the reserve currency, in relation to other currencies, the higher its exchange rate and the less competitive domestic exporting industries become. This causes a trade deficit for the USA, but is good for the rest of the world; therefore if the reserve currency country instead decides to focus on domestic monetary policy by not issuing more currency then the other countries are affected. This is considered a dilemma for the U.S. since they have to choose between their own good or the stability and health of the global economy.

Cohen

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