Chapter 3

Class 10
5. What is meant by the Bretton Woods Agreement?


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What is meant by the Bretton Woods Agreement?


The main aim of the post-war international economic system was to preserve economic stability and full employment in the industrial world. The United Nations Monetary and Financial Conference held in July 1944 at Bretton Woods in New Hampshire in the USA agreed upon its framework.

The Bretton Woods Conference established the following institutions:

  • International Monetary Fund: Its aim was to deal with external surpluses and deficits of its member nations
  • The International Bank for Reconstruction and Development or World Bank was set “Up to finance post-war reconstruction.
  • The above institutions are known as The Bretton Woods institutions or Bretton Woods twins. The post-war international economic system is also often described as the Bretton Woods system. It was based on fixed exchange rates. National currencies were pegged to the dollar at a fixed exchange rate. The dollar itself was anchored to gold at a fixed price of $ 35 per ounce of gold.
  • The decision-making in these institutions is controlled by the western industrial powers. The US has an effective right of veto over key IMF and World Bank decisions.

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