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Dec
06

Critics Of The Bretton Woods Agreements Said That

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In order to ensure economic stability and political peace, states have agreed to cooperate to accurately regulate the production of their currencies, maintain fixed exchange rates between countries and facilitate international trade more easily. This was the basis of the post-war American vision of global free trade, which included reducing tariffs and, among other things, maintaining a trade balance on fixed exchange rates, which would be favourable to the capitalist system. The Bretton Woods system was that nations could only impose the convertibility of gold on the anchor currency — the U.S. dollar. The imposition of the convertibility of gold was not necessary, but permitted. Nations could forgo converting dollars into gold and hold dollars instead. Instead of ensuring total convertibility, it offered a fixed price for sales between central banks. But there was still an open gold market. For the Bretton Woods system to remain feasible, it would have to either change the dollar`s attachment to gold or keep the free gold market price close to the official price of $35 per ounce.

The larger the gap between the free market gold price and the central bank gold price, the greater the temptation to deal with domestic economic problems by buying gold at the Bretton Woods price and selling it on the open market. The under-representation of low- and middle-income countries on IVI`s boards is exacerbated by the historic “gentleman`s agreement” between the United States and European countries, where the Fund and the Bank have been led by a European or American citizen since its inception. Civil society has long called for this opaque system to be replaced by a transparent, performance-based process. However, the appointment of World Bank President David Malpass in April 2019, a U.S. citizen running for the bank without an opposing candidate, showed that despite opposition from civil society, the gentlemen`s agreement has kept alive (see Observer Spring 2019). The Bretton Woods Agreements have been widely respected and ratified by the governments concerned. National foreign exchange reserves, supplemented by the necessary IMF loans, were expected to finance temporary balance-of-payments imbalances. But that was not enough to get Europe out of its conundrum. Bretton Woods` mission, as then U.S. Treasury Secretary Henry Morgenthau put it, was to “eliminate the economic ills – competitive devaluation and destructive trade barriers – that preceded the current war.” In 1944, in Bretton Woods, following the collective conventional wisdom of the time,[15] representatives of all leading allied nations collectively supported a regulated fixed exchange rate system, indirectly disciplined by a gold-related dollar[16] – a system based on a regulated market economy, with strict controls on money values.

International speculative financing flows have been held back by the passage and limitation by central banks. This meant that international investment flows were invested in foreign direct investment (FDI) – that is, the construction of factories abroad instead of international currency manipulations or bond markets. Although national experts have, to some extent, disagreed on the specific implementation of this system, everyone agreed on the need for strict controls. A second stream of long-standing criticisms focus on the content of the policies, programmes and projects promoted and implemented by the FIB and how they have violated a wide range of human rights, with the Bank even being described as a “human rights zone” by the UN Special Rapporteur on Extreme Poverty and Human Rights in 2015.

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