Question

the Bretton Woods system of fixed exchange rate collapsed in the early to mid-1970s. what events directly or indirectly or indirectly contributed to the end of Bretton Woods?

Answer 1

US President Richard Nixon formally ended the backing of US currency by the gold standard system in 1971. The Bretton Woods system of fixed exchange rate system collapsed and the events which are behind it as follows-

i) Increasing trade imbalance of the US economy. The coldwar between US and USSR drained the US treasury. This leads to deficit financing and a surge in imports. The rehabilated economies of Europe and Japan caught up to the US economy. The US economy was booming in 50s and 60s but in 70s it reached the point of deficit. It plays a direct role in the collapse.

ii) Due to implement of SDR (Special Drawing Right) of IMF, the US gold reserves declined because stock of gold had gone to the rest of the world. It indirectly influence the collapse

iii) The par value of currency was expressed in terms of gold as a common denominator. The introduction of dollar avoid the pitfalls of the gold standard. The stability of dollar and its full convertibility made it dollar as an international currency.

iv) There is another direct event which is structural fail. This system was mainly becoming mutual benefically for the participating states. When US show it is no longer experience any benefit of the system the system would begin to fall.

v) Failure of IMF to implement and enforcing the regulation upon the world to maintain the terms and condition of the system. As a result IMF allowed further dependence on dollar and weaken the regulatory structure.