history of gold – part 3: bretton woods system
DESCRIPTION
The third part of the history of gold explored the rejuvenated gold standard and the rise of the US dollar to a global reserve currency. The collapse of this system, Bretton Woods, was already certain from the beginning on, due to its flawed design. However, Bretton Woods encouraged world trade and bound countries closer together. From this perspective, this agreement was a success.TRANSCRIPT
3. PartBretton Woods System (1944
– 1971)
History of Gold
1. Bretton Woods established the rules for global commercial and financial relations in 1944
2. The US dollar as reserve currency was at its core with a fixed exchange rate of US$ 35 for one ounce of gold
3. As foreign currencies were pegged to the dollar, the gold rate could be set for a long time in advance.
1. INTRODUCTION OF BRETTON WOODS
1. The aim of Bretton Woods was a barrier-free word trade based on fixed exchange rates
2. Two auxiliary institutions were to oversee the system
3. These were the International Monetary Fund and the International Bank for Reconstruction
2. INTRODUCTION OF BRETTON WOODS
1. In 1959, the Belgic-American economist Robert Triffin pointed out a flaw in the Bretton Woods System.
2. Foreign governments held more dollar reserves as the US central bank had gold reserves.
3. Thus, to maintain liquidity for international trade, more US dollars had to be printed
3. TRIFFIN DILEMMA
1. In 1960 US foreign liabilities exceeded their national gold reserves
2. This proved a danger to Bretton Woods
3. To maintain the system, the USA and seven European nations agreed to keep the gold rate at a certain rate by market interventions
4. LONDON GOLD POOL
1. In 1967 the French president Charles de Gaulle declared that the Vietnam War made it impossible for France to continue with the payments for the London Gold Pool
2. In the same year, the British government decided to devalue the British Pound
3. This resulted in a rush demand for gold.
5. CRISIS AND COLLAPSE
1. In 1969 several participants of Bretton Woods tried to exchange their dollar reserves into gold
2. The United States was not able to fulfill their contractual obligations.
6. CRISIS AND COLLAPSE
1. Foreign US dollar reserves were in 1971 so large, that the US could not even have converted the dollar reserves for gold of only one participating country.
2. In 1971 Nixon cancelled unilaterally the direct convertibility of the dollar to gold
3. This led to a collapse of Bretton Woods and the fixed gold price of US$ 35 per ounce ceased to exist.
7. CRISIS AND COLLAPSE
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