Bretton Woods system

Definition

Set of multilateral agreements on international economic relations, negotiated at the UN Monetary and Financial Conference held in July 1944 (in the aftermath of second world War) attended by the finance ministers of the UK, US, and other Allied countries. The major objectives of this conference included (1) financing the reconstruction of the postwar Europe, and (2) avoiding unstable exchange rates and competitive-devaluations of pre-Second World War Western economies by instituting fixed exchange rates. World Bank (then called International Bank for Reconstruction & Development or IBRD) was established to serve the first objective, and International Monetary Fund (IMF) for the second. The System, however, collapsed in 1971 when the US suspended the Dollar's convertibility ($20.67 per ounce) to gold in August, devalued it in December, and thereafter opted for a floating exchange rate. Despite the demise of the System, both World Bank and IMF continue to play important (albeit altered) roles in today's international finance. Bretton Woods is the name of the township in the US state of New Hampshire where the negotiations were conducted.