Question

The Breton Woods agreement led to the global monetary system in use today. Problems with Breton Woods, however, also led to its collapse and highlight a basic tension over the roles money plays in any economy. Review why Breton Woods first enabled the international exchange of goods and later created increasing financial instability. What did President Nixon do in 1971 that transformed the international monetary system? Explain how the modern global monetary system works. What does it mean when currencies “float” or are “pegged”? Give examples. Also provide an example and explanation for a case where the international monetary system contributed to political instability/unrest within a country.

Answer 1

The Bretton wood[WU1] agreement established the rules and regulations for the commercial and financial relationships among the US, Canada, and European countries. Bretton Wood system was the first example of the fully negotiated monetary system intended to control and govern relation among fully independent states.

The World War II collapsed the economic structure in the world so that countries demanded an agreement to established economic and trade relations. The Bretton Wood agreement helped to establish some prominent bodies like IMF, World Bank, and IBRD.

In 1971, President Nixon closed the Gold window and suspended the convertibility of Dollar into Gold, this step is called as Nixon Shock. The American currency started to works as a leader in the world economy and made America the economic superpower.

The modern monetary system worked on the basis of demand and supply, the control over international monetary system shifted to Europe and Asia. China emerged as a major player in the world economy and challenging traditional monetary system.

The currency floatation depends on the move of market and capitalization, the recent time we are experiencing the globalization so that the floatation of currency increased in the world economy.

The international monetary system helped the countries to control over development as well as the political scenario. America used economic sanctions to control Iran and N Korea, and Russia too. In my opinion, economic control influenced the political scenario of the world.