Question

Steil (2013) in his VoxEu talk suggests parallels between the problems of the Bretton Woods system and the problems of the Eurozone today. Why was the Bretton Woods system set up in the 1940's? Why was the Euro created in the 1990's? Why did the Bretton Woods system collapse? Could the EMU collapse? Assess Steil's opinion that there are parallels between the systems. (long answer)

Answer 1

Bretton woods system

The britin woods agreement established in 1944 which gives a new global monetary system . It replaced the gold standard with the US dollar as the global currency. By doing this america established as the dominant power in world economy and after this agreement was signed , america was the only country with the ability to print dollar ,

it is the aggrement created the world bank and international monetary fund IMF , US-backed is the only organisation that would monitor the new system. It is a system of monetary management establish the rules for commercial and the financial relation among united states , canada , australia and japan after 1944 Bretton Woods aggrement  

EURO Created

The euro is the new single currency of te european monitory union adopted on january first , 1999 by eleven member states. The objective behind creation euro is as

-economic and monitory union (EMU) involve coordinating economic and fiscal policies

- a common monitory policy

- a commomn currecy

- a single currency offer many advantage

- companies find easier way to conduct business in cross border trade

- the economy becoome more stable

- the consumer has more choice and opportunity

Reason for Collapse of Bretton woods system

The bretton wood system ,itself colapsed in 1971 when the president Richard Nixon served the link between the dollar and gold . This decesion made to prevent a run on fort knox ehich contained only a third of the gold bullion necessary to cover the amount of dollar in the foreign hands. There are various reason for the collapse

- moral suasion on germany with the threat of pulling out US troops

- the creation of the gold pool in 1961 in which 8 central bank pooled their gold reserve in order to keep the london price of gold

- the general aggrement to borrow in 1961 through IMF facility large enough to offer substancial credit to US

A key force which led to break down of this system was rise in inflation in the US in 1965  

EMU Collapse

Euro falls after ECB hold fire , dollar jumps , the reson for collapse is

- adoption of euro forbits monitory flexibility so that no commitment from the company

- problem in paying government debt or deficit

- different countrie shave different tax structure

- greece representthe most high profile example of the flaws in the EMU

Steil's Opinion parallel between the systems

Steil is the senior fellow at think-tank , the council on foreign relation and he is well known writter on financial subject , he clearly define personal , political and economic way to deal the program

Steil bring out nicely the parallel between the two system which is rigid exchange rate and floating rate system . The ecommend week dollar to help US exporte To oppose policy  and fixed rate kept the currency of a country with a payment surplus from rising, now the floating rate allow the currnecy of a deficit country to sink.

They also try to solve problem politically , steal is both fair minded and engaging writer with different prospective and help to sought out the issues ad ensure that the dollar would be given a special position of convertibility into gold and use this for the settlement of international transactions.