Question
In: Economics
List the pros and cons of the Bretton Woods system. Why did it collapse in the...
List the pros and cons of the Bretton Woods system. Why did it collapse in the 1970s?
Solutions
Expert Solution
Bretton woods system :
It is often refer the international monetary regime that prevailed from end of world war 2
It was the first example of fully negotiated monetary order intended to govern currency
The main objective of the bretton woods system are to achieve exchange rate stability and promote international trade and development
This system ended in 1971
Advantages of britten woods system
1. Expansion of international trade and investment as well macroeconomic performance
2. Rate of inflation decreased
Disadvantages of britten woods system
1. Pressure put on the United states
2. Structure problems us had to maintain increasing trade deficit
3. exchange rate rigidity
Collapse of bretton woods system:
In 1960 there was a run on dollar and pound, there was a short period of a floating bretton woods system exchange rate , but it was effectively ended in 1971
Inflationary monetary policy that was inappropriate for the key currency country of the system was the main reason for the collapse of britten woods system
Woods system was based on rules the important rule was to follow monetary and fiscal policies
3 weaknesses of bretton woods system were
Liquidity, adjustment and confidence
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