How Bretton Woods Came About – Part 3
. During the 1940s, two World Wars broke out. It wreaked havoc on the gold standard and world financial market with the Great Depression occurring in between.
. After the war, world leaders decided to come together under the Bretton Woods Agreement. This agreement created a gold exchange standard where the gold price is fixed to the US dollars.
. Why was the US chosen ? – Because the US was the strongest economy after the Second World War.
. In 1944, the international monetary agreement agreed upon by the allied nations created the IMF (International Monetary Fund) and World Bank that set up a system of fixed exchange rates with the US dollar as the international reserve currency.
. The IMF was created to monitor exchange rates and lend reserves currencies to nations. The World Bank was set up to provide financial assistance for countries during the reconstruction phase of World War I. Both IMF and World Bank foster global monetary cooperation, secure financial stability, facilitate international trade and promote high employment and sustainable economic growth and reduce poverty.