International Monetary Fund (IMF), United Nations (UN) specialized agency, founded at the Bretton Woods Conference in 1944 to secure international monetary cooperation, to stabilize currency exchange rates, and to expand international liquidity (access to hard currencies).

Critics say that globalization hurts workers as this increased trade, foreign investment, and offshore outsourcing leads firms and countries to engage in a “race to the bottom,” driving down wages, weakening regulations, and undermining sources of economic stability.

globalization critics often argue that adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises and puts them at a competitive disadvantage in the global marketplace vis-a-vis firms based in developing nations that do not have to comply with such regulations.

The two Bretton Woods Institutions it created in the International Monetary Fund and the World Bank played an important part in helping to rebuild Europe in the aftermath of World War II.

– Critics of globalized democratization say that globalization overwhelms people with information and choices, leading to alienation and a public backlash. They argue that societal globalization is more likely to lead to nationalism and fundamentalism as people retreat into old identities rather than create new ones.

The Bretton Woods system of fixed exchange rates

• The “pegged rate” or “par value” currency regime.
• The “reserve currency”
• Designing the IMF.
• Subscriptions and quotas.
• Financing trade deficits.
• Changing the par value.
• IMF operations.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the International Monetary Fund (IMF) to bridge temporary imbalances of payments.

Three basic weaknesses of the Bretton Woods System, identified by the Committee included liquidity, confidence and adjustment.

On August 15, 1971, President Richard M. Nixon announced his New Economic Policy, a program “to create a new prosperity without war.” Known colloquially as the “Nixon shock,” the initiative marked the beginning of the end for the Bretton Woods system of fixed exchange rates established at the end of World War II.

Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country.

• The Dollar is pegged to the gold.
• All other currencies are pegged to the dollar.
• Adjustable fixed exchange rates.
• The principle for currency conversion and international payment and settlement.
• The USD as a reserve currency.
• The adjustment of international payment.

The Bretton Woods system then broke down because of its fundamental flaw of pledging convertibility to gold, which was unsustainable given the course of U.S. economic policy. Altogether the Triffin Dilemma can be used a means to explain why the Bretton Woods system eventually broke down.

Summary: The Bretton Woods Agreement established a system through which a fixed currency exchange rate could be created using gold as the universal standard. The agreement involved representatives from 44 nations and brought about the creation of the International Monetary Fund (IMF) and the World Bank.

(i) Bretton Woods system inaugurated an era Of unprecedented growth of trade and income for the Western industrial nations and Japan. (ii) It provided a big boost to the world trade which grew annually at over 8 per cent between 1950 and 1970. and incomes at nearly 5 per cent.

The result was not just deflation (a fall in prices) but also high unemployment. In other words, the deficit country could be pushed into a recession or depression by the gold standard. A related problem was one of instability. Under the gold standard, gold was the ultimate bank reserve.

Why did the U.S. dollar become a substitute for gold in international markets during the 20th century? A. The United States had threatened to cut off trade with other countries. The UNited States sold gold at the lowest prices in the world.

The fixed exchange rate also caused both monetary and nonmonetary (real) shocks to be transmitted via flows of gold and capital between countries. Therefore, a shock in one country affected the domestic money supply, expenditure, price level, and real income in another country.

The advantages of the gold standard are that (1) it limits the power of governments or banks to cause price inflation by excessive issue of paper currency, although there is evidence that even before World War I monetary authorities did not contract the supply of money when the country incurred a gold outflow, and (2) …

When the Great Depression hit, the people in England panicked, and started trading in their paper money for gold. It got to the point where the Bank of England was in danger of running out of gold. They were about to run out of gold. So they abandoned the gold standard.

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