BRETTON WOODS SYSTEM OF EXCHANGE RATES IN INTERNATIONAL MONETARY SYSTEM

 Bretton Woods SYSTEM (1944-1971)

   At the end of  world war II , there emerged a consensus among the major countries of the world that an orderly global monetary system that ensured stability in exchange rates between currencies was necessary. 

   At a major conference at Bretton Woods , New Hampshire,USA, two international financial institutions namely the International Monetary Fund(IMF), and WORLD BANK were established. A new exchange rate regime was negotiated and approved. 

   The primary objective was to avoid the situation of monetary chaos that prevailed during the inter war days.At Bretton Woods conference, an attempt was made to establish a fully negotiated monetary order intended to govern currency relations among sovereign states.

         The system worked  fairly well till the beginning of the 1960s , slowly pressure began to build on the US Dollar from mid 1960s and the confidence in the US dollar was eroded due to a mixture of economic and political factors. 

  On August 15, 1971 the US Government suspended the convertibility of US dollar into gold, thus virtually ending Bretton Woods Exchange Rate Regime