Why did the Bretton Woods system came to an end?

1504 WordsSep 25, 20137 Pages
Why did the Bretton Woods system come to an end? The Bretton Woods system was created in July 1944 by the United States and its allies in order to formulate a plan for European recovery and create a new postwar international monetary and financial system that was supposed to encourage grow and development (Balaam, Dillam 2011). The Bretton Woods financial and monetary structure was supposed to ensure exchange rate stability and encourage its member countries to eliminated exchange rate restrictions that hinder trade. The International Monetary Fund (IMF) and the World Bank were conceived by the Bretton Woods system (International Monetary Fund). The countries that joined the IMF adopted an alternated version of the former gold standard’s…show more content…
According to Kindleberger, for the development of a liberal, open stable international economy, there has to be a stabilizer power – a hegemon. Hegemony means dominance or leadership, especially by one nation. Hegemons are the states that dominate the system and pay most of the cost of maintaining a stable system. The hegemonic stability theory argues that in order for the international system to achieve grow and stability there has to be a state that acts as a hegemon, dominating the others but also paying the cost associated with undertaking problems in the international system. The hegemonic stability theory raises that one country that is unusually rich and powerful dominates other states or the entire international system for a length of time, during which it establishes and enforces a set of rules that regulate various elements of the international political economy (Balaam, Dillam 2011). At the beginning of the Bretton Woods system, the costs of being the hegemonic power for the United States, after the World War II, were low. The United States had many advantages when it came to the monetary and security relations between itself and Western Europe. By only printing money, the United States was able to spend much more than it actually had for many domestic programs such as the Great Society, and could also fund the Vietnam War. The costs of those programs could not weaken the dollar against the value of gold, because it was a fixed exchange
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