Bretton Woods Agreement#WorldBank#IMF | International Business | From A Business Professor

Summary

This video provides an overview of the Bretton Woods Agreement, which was negotiated in 1944 to establish a new international monetary system after the collapse of the gold standard and economic disruptions caused by World War II. The agreement created the International Monetary Fund (IMF) and the World Bank, with the IMF aiming to maintain monetary stability and the World Bank focusing on economic development. It also implemented a system of fixed exchange rates. The video explains the historical background, establishment, and eventual collapse of the Bretton Woods system, along with the missions of the IMF and World Bank.

Takeaways

• 🌍 The Bretton Woods Agreement was negotiated in July 1944 by delegates from 44 countries, leading to the creation of the World Bank and the International Monetary Fund (IMF).
• 💰 The gold standard, in place before World War I, was abandoned during the war due to inflation caused by governments printing money for military expenses.
• 📉 Britain faced a deep depression after returning to the gold standard, which priced its goods out of foreign markets, leading to the suspension of gold convertibility in 1931.
• 💸 In 1933, the U.S. left the gold standard but returned in 1934, devaluing the dollar to $35 per ounce of gold, sparking a wave of competitive devaluations by other countries.
• 🏦 The Bretton Woods Agreement aimed to establish fixed exchange rates and prevent competitive devaluations by creating global financial institutions like the IMF and World Bank.
• 💵 The Bretton Woods system pegged the U.S. dollar to gold and other currencies to the dollar, creating a more stable international monetary system.
• 📉 The collapse of the Bretton Woods system in 1971 occurred when President Nixon suspended the dollar’s convertibility into gold due to insufficient U.S. gold reserves.
• 🌐 The World Bank provides long-term loans and technical assistance to developing countries, while the IMF focuses on financial stability and crisis prevention through loans and economic advice.
• 📊 The IMF uses three key methods to achieve its mission: surveillance of global economies, capacity building through training and policy advice, and lending to countries in distress.
• 🏛️ The IMF and World Bank continue to be influential institutions in global economic development and financial stability, despite the collapse of the original Bretton Woods system.

Q & A

What was the primary purpose of the Bretton Woods Agreement?

The Bretton Woods Agreement aimed to establish a new international monetary system after the collapse of the gold standard. It sought to create a fully negotiated monetary order governing relations among independent countries, with the goal of promoting global economic stability and growth.

Why was the gold standard abandoned during World War I?

The gold standard was abandoned during World War I because several governments financed their military expenditures by printing money, leading to inflation. By the end of the war, price levels had risen, making it difficult for countries to maintain the gold standard.

What were the two main institutions created by the Bretton Woods Agreement?

The two main institutions created by the Bretton Woods Agreement were the International Monetary Fund (IMF) and the World Bank. The IMF was tasked with maintaining order in the international monetary system, while the World Bank focused on promoting economic development.

How did the Bretton Woods system manage exchange rates?

Under the Bretton Woods system, countries were required to fix the value of their currency in terms of gold. However, only the U.S. dollar was directly convertible into gold at $35 per ounce. Other currencies were pegged to the U.S. dollar, creating a fixed exchange rate system.

What led to the collapse of the Bretton Woods system?

The Bretton Woods system collapsed in 1971 when U.S. President Nixon suspended the convertibility of the U.S. dollar into gold due to concerns about insufficient gold reserves. By 1973, countries were allowed to choose their own exchange rate systems, marking the end of the Bretton Woods system.

What are the main functions of the World Bank?

The World Bank provides loans to developing countries to promote economic development. It operates through two branches: the International Bank for Reconstruction and Development (IBRD), which offers loans at market rates, and the International Development Association (IDA), which provides interest-free loans and technical assistance to low-income countries.

How does the IMF achieve its mission of global financial stability?

The IMF uses three primary methods to achieve global financial stability: surveillance, capacity building, and lending. It collects data on national economies, provides technical assistance and training, and makes loans to countries facing financial crises.

What was the outcome of the IMF's involvement in Jordan?

The IMF helped Jordan implement a series of economic reforms in the 1990s, which included privatization, tax reforms, and trade policies. These efforts led to Jordan's admission into the World Trade Organization and a free trade agreement with the U.S., improving the country's economic stability.

Why did the IMF's intervention in Tanzania face criticism?

The IMF's intervention in Tanzania was criticized because it imposed policies like lowering trade barriers and cutting government programs, which negatively affected sectors like healthcare and education. School enrollment dropped, illiteracy rates increased, and access to healthcare worsened, highlighting the drawbacks of a one-size-fits-all approach.

How does the IMF determine the amount of money a country can borrow?

The IMF determines how much a country can borrow based on its quota, which is calculated according to the country's wealth and economic performance. Quotas also determine the voting power each country holds within the IMF.