Jack Murphy

Mr. Shirk

International Relations

11 November 2013

Blog #4

            As shown by the failures of the Bretton Woods System, to pin your currency to another currency is not a good idea. While it does make sense why Harry Dexter White, of the U.S. treasury and developer of the Bretton Woods System, and the U.S. would want to make there currency the standard for other nations since it would make the U.S. currency the most sought after, there were flaws. Parts of the Bretton Woods System I do agree with though such as the ‘par value’ system or ‘adjustable peg’ system, since it obligated its members to “declare a par value (a ‘peg’) for their national money and to intervene in currency markets to limit exchange-rate fluctuations” and since it allowed members to “alter their par value to correct a ‘fundamental disequilibrium’ in their balance of payments” (Cohen 85). I also agree that “some binding framework of rules was needed to ensure the states would remove existing exchange controls limiting currency convertibility and return to a system of free multilateral payments” (Cohen 85). This would keep the market fair and prevent inflation. Lastly I agree that the formation of the IMF as an “institutional forum for international cooperation’s on monetary matters” (Cohen 85) was needed. The IMF largely being led by the U.S. was also beneficial to the U.S. since they could control the worlds “regulatory (administering the rules governing currency values and convertibility), financial (supplying supplementary liquidity), and consultative (providing a forum for cooperation among governments)” (Cohen 86). Yet I do not believe that it was a good idea to back currencies with U.S. dollars.

            While essentially the Bretton Wood System was still on the gold standard since “the U.S. pledged convertibility of its dollars into gold at a fixed price” (Cohen 86) there were many flaws. First of all, while the demand for money increased it price in gold did not change. The high demand caused inflation rates to rise since more money was needed. That along with the recession in the 1970’s caused stagflation. To fix this President Nixon deflated the dollar causing countries to cash in their dollars for gold and essentially ending the Bretton Woods System. Also, hypothetically, if there was a crash in the U.S.  economy, such as that during the Great Depression, when the Bretton Woods System was in use, every currency using the system would suffer since their money would be worth whatever the pegged value was.

            So in my opinion the Bretton Woods System could have worked if the gold standard was kept, the same rules were made creating a fixed exchange rate, an IMF like organization, and restricting economic warfare. With a gold standard the U.S. would not have had to print excess dollars, which caused inflation and the eventual downfall of the Bretton Woods System. This is why gold would have been better then the U.S. dollar.

Work Cited

Amadeo, Kimberly. "Bretton Woods International Monetary System and 1944 Agreement." About.com US Economy. About.com, 4 Jan. 2012. Web. 11 Nov.2013.

Cohen, Benjamin J. "Benjamin J. Cohen, Bretton Woods System." Benjamin J. Cohen.                                                                         Polisci.ucsb.edu, n.d. Web. 11 Nov. 2013.