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8/12/2019 Bretten Wood System Final
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8/12/2019 Bretten Wood System Final
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GROUP MEMBERS
SR.NO NAME ROLL NO
1. RAJANI RAJAPPAN 84
2. SONIYA MORE 85
3. PRAVIN KOYANDE 86
4. ROHAN TRIVEDI 88
5. SHRADHA CHINDARKAR 89
8/12/2019 Bretten Wood System Final
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THE BRETTON WOOD SYSTEM
INTRODUCTION
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8/12/2019 Bretten Wood System Final
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THE BRETTON WOODS SYSTEM OF FIXED EXCHANGE RATES
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I. THE INTERNATIONAL MONETARY FUND
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8!$"e" 1 e!41%e%2 #%2e!%12#$%1 /$d0, The International Monetary Fund, #2h $e!"
1%d !e"$8!5e" 1de:812e 2$ e!&$!4 2he 21";" 1""#7%ed 2$ #2. A7!ee4e%2 h1" /ee% !e15hed
5$%5e!%#%7 2he"e $e!" 1%d !e"$8!5e" 1%d 2he 1dd#2#$%1 $/#712#$%" h#5h 2he 4e4/e!
5$8%2!#e" "h$8d 8%de!21;e. D!1&2 A!2#5e" $& A7!ee4e%2 $% 2he"e $#%2" h13e /ee%
!e1!ed.
II. THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELPOMENT
I2 #" #% 2he #%2e!e"2 $& 1 %12#$%" 2h12 $"2-1! !e5$%"2!852#$% "h$8d /e !1#d. L#;e#"e,
2he de3e$4e%2 $& 2he !e"$8!5e" $& 1!2#581! !e7#$%" #" #% 2he 7e%e!1 e5$%$4#5 #%2e!e"2.
P!$7!14" $& !e5$%"2!852#$% 1%d de3e$4e%2 # "eed e5$%$4#5 !$7!e"" e3e!0he!e,
# 1#d $#2#51 "21/##20 1%d &$"2e! e15e.
The C$%&e!e%5e h1" 17!eed 2h12 e61%ded #%2e!%12#$%1 #%3e"24e%2 #" e""e%2#1 2$ !$3#de
1 $!2#$% $& 2he 51#21 %e5e""1!0 &$! !e5$%"2!852#$% 1%d de3e$4e%2.
The C$%&e!e%5e h1" &8!2he! 17!eed 2h12 2he %12#$%" "h$8d 5$$e!12e 2$ #%5!e1"e 2he
3$84e $& &$!e#7% #%3e"24e%2 &$! 2he"e 8!$"e", 41de 2h!$87h %$!41 /8"#%e""
5h1%%e". I2 #" e"e5#10 #4$!21%2 2h12 2he %12#$%" "h$8d 5$$e!12e 2$ "h1!e 2he !#";" $&
"85h &$!e#7% #%3e"24e%2, "#%5e 2he /e%e" 1!e 7e%e!1.
The C$%&e!e%5e h1" 17!eed 2h12 2he %12#$%" "h$8d e"21/#"h 1 e!41%e%2 #%2e!%12#$%1
/$d0 2$ e!&$!4 2he"e &8%52#$%", 2$ /e 51ed The I%2e!%12#$%1 B1%; &$! Re5$%"2!852#$%
1%d De3e$4e%2. I2 h1" /ee% 17!eed 2h12 2he B1%; "h$8d 1""#"2 #% !$3#d#%7 51#21
2h!$87h %$!41 5h1%%e" 12 !e1"$%1/e !12e" $& #%2e!e"2 1%d &$! $%7 e!#$d" &$! !$
8/12/2019 Bretten Wood System Final
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1%d $% 2he $/#712#$%" h#5h 2he 4e4/e! 5$8%2!#e" 48"2 1""84e, 1%d h1" !e1!ed d!1&2
A!2#5e" $& A7!ee4e%2 155$!d#%70.
The C$%&e!e%5e h1" !e5$44e%ded 2h12 #% 51!!0#%7 $82 2he $#5#e" $& 2he #%"2#282#$%" he!e
!$$"ed "e5#1 5$%"#de!12#$% "h$8d /e 7#3e% 2$ 2he %eed" $& 5$8%2!#e" h#5h h13e
"8&&e!ed &!$4 e%e40 $55812#$% 1%d h$"2##2#e".
The !$$"1" &$!4812ed 12 2he C$%&e!e%5e &$! 2he e"21/#"h4e%2 $& 2he F8%d 1%d 2he
B1%; 1!e %$ "8/4#22ed, #% 155$!d1%5e #2h 2he 2e!4" $& 2he #%3#212#$%, &$! 5$%"#de!12#$%
$& 2he 7$3e!%4e%2" 1%d e$e $& 2he 5$8%2!#e" !e!e"e%2ed.
TRIFFINS PARADOX
U%de! 2he B!e22$% W$$d" A7!ee4e%2, 5$8%2!#e" e!e 7#3e% 2he 5h$#5e $& "e22#%7 2he 1!
318e $& 2he#! 58!!e%5#e" &$! 58!!e%2 155$8%2 2!1%"152#$%" #% 2e!4" $& 7$d $! d$1!". S#%5e
3#!2810 1 /e#7e!e%2 5$8%2!#e" %#"hed 2he 1! #% de/2 2$ 2he US &$! 1#d $! "8#e",
2he US hed 3#!2810 1 2he 7$d $! 1 51#4 $% #2. Th8", 2he US 1" 2he $%0 5$8%2!0 1/e
2$ 2he 1! 318e $& #2" 58!!e%50 #% 2e!4" $& 7$d, h#e 1 $2he! 5$8%2!#e" "e2 2he#! 1!
318e" #% 2e!4" $& 2he d$1!. The d$1! 2h8" e&&e52#3e0 !e15ed 7$d #% 2he B!e22$%
W$$d" "0"2e4 1%d 2he 318e $& 2he d$1! 1" de2e!4#%ed /0 2he h$d#%7" $& US 7$d
!e"e!3e". S#%5e 1 $2he! 5$8%2!#e" h1d "e2 1! 318e" 171#%"2 2he d$1!, 2he0 !e:8#!ed
d$1! !e"e!3e" 2$ e%"8!e 58!!e%2 155$8%2 5$%3e!2#/##20. Th#" 4e1%2 2h12 2he
"21/##20 $& e65h1%7e !12e" 1" 2he !e"82 $& #%2e!3e%2#$% #% 2e!4" $& d$1!" /0 1 5e%2!1
/1%;" e65e2 2he US. I2 41de 2he US d$1! 2he $%0 #%2e!3e%2#$% 58!!e%50 1%d 15ed 2he
"21/##20 $& e65h1%7e !12e" $% 2he ##%7%e"" 1%d 1/##20 $& %$%-US 5e%2!1 /1%;" 2$
#%2e!3e%e #% &$!e#7% e65h1%7e 41!;e2" 2$ de&e%d 2he 318e $& 2he d$1!. >I2 1"$ 4e1%2
2h12 2he US d$1! e%
8/12/2019 Bretten Wood System Final
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I44ed#12e0 &$$#%7 2he 1!, %e1!0 1 $& 2he $!d+" 4$%e21!0 7$d 1" #% 2he US,
4$"2 $& 2he "#7%12$!#e" $& 2he B!e22$% W$$d" 2!e12#e" $ed 4$%e0 2$ 2he US. F8!2he!,
2he#! !e5$%"2!852#$% dee%ded $% #4$!2" &!$4 2he US, 2he $%0 e5$%$40 %$2 d1417ed /0
1!, "$ 2he US 1" #% /11%5e $& 104e%2" "8!8". Th8", %$2 $%0 1" 7$d "51!5e
$82"#de 2he US, 2he d$1! 1" 1"$ "51!5e.H$e3e!, 2he 14$8%2 $& d$1!" hed $82"#de
2he US e3e%2810 "8!1""ed 2he 7$d !e"e!3e" hed /0 2he US e31812ed 12 2he $
B!e22e% W$$d" 1!#20. Th8" 2he T!#&% 1!1d$6= 2he "855e""&8 $e!12#$% $& 2he
#%2e!%12#$%1 %1%5#1 "0"2e4 dee%ded $% 1% e61%"#$% $& d$1! !e"e!3e" 2$ ;ee
#%2e!%12#$%1 #:8#d#20 7!$#%7 #% "2e #2h !1#d0 e61%d#%7 $!d 2!1de.
But, this could only be achieved by a US payments deficit that continually increased
foreign claims on the fixed US gold supply. Once these claims exceeded the dollar value
of the gold supply at the $35 parity, the convertibility of the dollar into gold at the official
parity depended on the willingness of foreigners to refrain fromconverting dollars into
gold. This created a dilemmafor foreign holders of dollars, in particular foreign central
banks who were responsible for stabilising the dollar and thus had to accumulate ever-
larger dollar balances as non-official holders converted dollars to other currencies, in
particular DM. A recognition of the appreciation of the dollar value of gold a
de!e5#12#$% $& 2he d$1! !e12#3e 2$ 2he $2he! 58!!e%5#e" $8d 4e1% 51#21 $""e" $%
2he d$1! !e"e!3e". Th8" &$!e#7% h$de!" $& 2he d$1! &15ed 1 5125h-@@ "#2812#$% !e&e52ed
#% 2he T!#&% 1!1d$6. I& 2he0 5$%3e!2ed 2he d$1!" #%2$ 7$d 12 2he US T!e1"8!0 >2he0
5$8d %$2 "e 2he d$1!" &$! $2he! 58!!e%5#e" "#%5e 2he0 e!e !e"$%"#/e &$! #%7 2he
!12e" $& 2he#! 58!!e%5#e" !e12#3e 2$ 2he d$1!, h#5h 1" 1!e1d0 #% 5h!$%#5 e65e"" "80
#% &$!e#7% e65h1%7e 41!;e2"? 2h#" $8d &8!2he! !ed85e 2he 7$d /15;#%7 2he $82"21%d#%7
d$1! /11%5e" 1%d 41;e #2 4$!e #;e0 2h12 2he d$1! $8d /e de318ed, de!e5#12#%7
1 $& 2he#! d$1! !e"e!3e h$d#%7" 1%d !$d85#%7 1!7e &$!e#7% e65h1%7e $""e" $% 2he#!
/11%5e "hee2". I& 2he0 5$%3e!2ed e65e"" d$1! /11%5e" 2he0 !#";ed !e5##212#%7 1
de31812#$%, 1%d #& 2he0 d#d %$2 2he0 !#";ed e3e% 1!7e! $""e" #& 2he de31812#$%
occurred in any case.
M1%0 5$8%2!#e" >e"e5#10 F!1%5e? 1!78ed 2h12 2he !$/e4 $& e65e"" d$1! /11%5e"
5$8d/e !e"$3ed #& 2he US 2#7h2e%ed #2" d$4e"2#5 $#5#e" 1%d !1% /11%5e $& 104e%2"
"8!8"e", /82 2h#" !e4ed0 &$! 2he d$1! "8!8" $8d "#40 h13e !ed85ed 2he 7!$2h $&
8/12/2019 Bretten Wood System Final
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#%2e!%12#$%1 #:8#d#20 1%d 5!e12ed 2he !#"; $& 7$/1 !e5e""#$% #2 1" 1% $8%5e $& 7$d 1" $!2h @*. #% 2e!4" $& 2he U.S. d$1! $3e! 2he
7$d "21%d1!d e!#$d? #% 7$d "21%d1!d. E15h 58!!e%50 #" de%ed #% 2e!4" $& #2" 7$d 318e
he%5e 1 58!!e%5#e" 1!e #%;ed 2$7e2he! #% 1 "0"2e4 $& ed e65h1%7e !12e". G$d 1"
8"ed 1" 1 4$%e21!0 "21%d1!d /e518"e #2 #" 1% #%2e!%12#$%10-!e5$7%#ed h$4$7e%e$8"
5$44$d#20 2h12 #" e1"#0 "2$!1/e, $!21/e, 1%d d#3#"#/e #%2$ "21%d1!d#ed 8%#2", "85h 1"
$8%5e". S#%5e 7$d #" 5$"20 2$ !$d85e, #2 $""e""e" 1%$2he! #4$!21%2 122!#/82e
7$3e!%4e%2" 51%%$2 e1"#0 #%5!e1"e #2" "80.
THE GOLD EXCHANGE STANDARD
A% #%2e!%12#$%1 5$%&e!e%5e 12 B!e22$% W$$d", Ne H14"h#!e, #% '(99 12 2he 5$"e $&
W$!d W1! II 2!1%"&$!4ed 2he #%2e!%12#$%1 4$%e21!0 "0"2e4 #%2$ $%e /1"ed $% 48281
5$$e!12#$% 1%d &!ee0 5$%3e!2#/e 58!!e%5#e". B0 2h#" e15h 5$8%2!0 h1d 2$ 2he 318e $&
#2" 58!!e%50 #% 2e!4" $& 7$d. Th#" e"21/#"hed 2he 1! 318e $& e15h 58!!e%50. The U.S.
1" 2he 41#% 58!!e%50 #% 2he "0"2e4 1%d ' 1" e:812ed #% 318e 2$ ') $. $& 7$d.
B0 2h#" 1 58!!e%5#e" e!e #%;ed #% 1 "0"2e4 $& ed e65h1%7e !12e".
The 4e4/e!" e!e 5$44#22ed 2$ 41#%21#%#%7 2he 318e $& 2he 58!!e%50 #2h#% -' $&
1!#20. The 31!#$8" 5e%2!1 /1%;" e!e 2$ 15h#e3e 2h#" 7$1 /0 /80#%7 1%d "e#%7 2he#!
58!!e%5#e" >8"810 171#%"2 2he d$1!? $% 2he &$!e#7%-e65h1%7e 41!;e2. Whe% 1 5$8%2!0
8/12/2019 Bretten Wood System Final
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e6e!#e%5ed d#& 41#%21#%#%7 #2" 1!#20 318e d8e 2$ /11%5e $& 104e%2"
d#"e:8##/!#1, #2 5$8d 28!% 2$ 2he I%2e!%12#$%1 M$%e21!0 F8%d >IMF?, h#5h 1" 5!e12ed
2$ 4$%#2$! 2he !$3#"#$% $& "h$!2-2e!4 $1%" 2$ 5$8%2!#e" e6e!#e%5#%7 2e4$!1!0 /11%5e
$& 104e%2 d#e".
EXTERNAL AND INTERNAL CONVERTIBILITY
Whe% 1 h$d#%7" $& 2he 58!!e%50 /0 %$%-!e"#de%2" 1!e &!ee0 e65h1%7e1/e #%2$ 1%0
&$!e#7% >%$%- !e"#de%2? 58!!e%50 12 e65h1%7e !12e" #2h#% 2he $ 41!7#%" 2h1% 2h12
58!!e%50 #" "1#d 2$ /e e62e!%10 5$%3e!2#/e. A 104e%2" 2h12 !e"#de%2" $& 2he 5$8%2!0
1!e 182h$!#ed 2$ 41;e 2$ %$%-!e"#de%2" 410 /e 41de #% 1%0 e62e!%10 5$%3e!2#/e
58!!e%50 2h12 !e"#de%2" 51% /80 #% &$!e#7% e65h1%7e 41!;e2". A%d #& 2he!e 1!e %$
!e"2!#52#$%" $% 2he 1/##20 $& 1 5$8%2!0 2$ 8"e 2he#! h$d#%7" $& d$4e"2#5 58!!e%50 2$
15:8#!e 1%0 &$!e#7% 58!!e%50 1%d h$d #2, $! 2!1%"&e! #2 2$ 1%0 %$%!e"#de%2 &$! 1%0 8!$"e,
2h12 5$8%2!0+" 58!!e%50 #" "1#d 2$ /e #%2e!%10 5$%3e!2#/e. Th8" e62e!%1 5$%3e!2#/##20 #"
2he 1!2#1 5$%3e!2#/##20 1%d 2$21 5$%3e!2#/##20 #" 2he "84 $& e62e!%1 1%d #%2e!%1
5$%3e!2#/##20.
CONVERTIBILITY2 WHY3
E62e!%10 #%5$%3e!2#/e 58!!e%5#e" 410 /e $& !12he! #4#2ed 318e 2$ 2he#! h$de!. A%
e6$!2ed #2e4 &!$4 1 de3e$#%7 5$8%2!0 2$ 2he USSR, &$! e614e, 410 /e 1#d &$! #%
!8/e" $! 2he 58!!e%50 $& 1 5$8%2!0 2h12 h1" !12#ed A!2#5e III. The !$5eed" 410 /e
8"ed 2$ 8!5h1"e 7$$d" 1%0he!e.
I% 5$%"#de!#%7 $""#/e #4$!2 "8#e!", 2he!e&$!e, 1 de3e$#%7 5$8%2!0 # h13e "$4e
#%2e!e"2 #% d#!e52#%7 #2" #4$!2e!" 2$ 2h$"e 5$8%2!#e" 2h12 # h13e "$4e #%2e!e"2 #%
d#!e52#%7 #2" #4$!2e!" 2$ 2h$"e 5$8%2!#e" h$"e #%5$%3e!2#/e 58!!e%5#e" 1!e #% 1!7e
"80. Th#" #", $& 5$8!"e, 1 51"e $& 2!1de d#"5!#4#%12#$% 2h12 #" 5$%de4%ed /0 2!1d#2#$%1
2he$!0. Th#" 4e1%" 2h12 7$$d" 1!e %$2 /e#%7 8!5h1"ed &!$4 2he 5he1e"2 "$8!5e. Re5e%2
e5$%$4#5 !#2#%7 h1", h$e3e!, !e$e%ed 2he :8e"2#$% #% 3#e $& 2he 5$%2#%8ed e6#"2e%5e
$& #%5$%3e!2#/e 58!!e%5#e". Whe!e #2 #" !$/e $% 2he e6$!2 "#de 2$ 2!1de #2h
8/12/2019 Bretten Wood System Final
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5$8%2!#e" 41#%21#%#%7 #%5$%3e!2#/e 58!!e%5#e", 1%d 2he 7$3e!%4e%2 #"he" 2$ e%5$8!17e
#4$!2" &!$4 2h$"e 5$8%2!#e" 2$ $&&"e2 #2" 5!ed#2 /11%5e", #2 # 82##e #2" e65h1%7e
d#"2!#/82#$% 4e5h1%#"4 2$ #4#2 2he 131#1/##20 $& 5$%3e!2#/e e65h1%7e he!e 2he!e 1!e
12e!%12#3e "8#e!" $& 2he "14e 20e $& 7$$d" #% #%5$%3e!2#/e 58!!e%50 5$8%2!#e".
CURRENT ACCOUNT CONVERTIBILITY
C8!!e%2 155$8%2 #" de%ed 1" #%58d#%7 2he 318e $& 2!1de #% 4e!5h1%d#"e, "e!3#5e",
#%3e"24e%2, #%5$4e 1%d 8%#12e!1 2!1%"&e!". C8!!e%2 155$8%2 5$%3e!2#/##20, /e#%7
e""e%2#1 2$ 2he de3e$4e%2 $& 482#12e!1 2!1de, 2h!ee 1!$15he" 2$ 58!!e%2 155$8%2
5$%3e!2#/##20 h1" /ee% 1d12ed /0 de3e$#%7 5$8%2!#e". The"e 1!e 2he !e-
1%%$8%5e4e%2, /0-!$d852, 1%d &!$%2-$1d#%7 1!$15he". E15h 1!$15h #" d#"2#%78#"hed
/0 2he #4$!21%5e #2 12215he" 2$ 5$%3e!2#/##20 !e12#3e 2$ $2he! e5$%$4#5 $/
8/12/2019 Bretten Wood System Final
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PROS AND CONS OF CONVERTIBILITY
F8 58!!e%50 5$%3e!2#/##20 #" 2e5h%#510 e1"0 2$ 15h#e3e= "#40 e!4#2
e3e!0$%e, !e"#de%2" 1%d %$%-!e"#de%2" 1#;e, 2$ /80 1%d "e h$4e 58!!e%50 &$! $2he!
58!!e%5#e" &!ee0 1%d #2h$82 !e"2!#52#$%. C$%3e!2#/##20 &$! 58!!e%2 155$8%2 2!1%"152#$%"
>&$!e#7% 2!1de #% 7$$d" 1%d "e!3#5e", #%58d#%7 2he !e4#221%5e $& e1!%#%7"?, "85h 1" #"
!e:8#!ed /0 2he A!2#5e" $& A7!ee4e%2 $& 2he I%2e!%12#$%1 M$%e21!0 F8%d, #" 4$!e
5$4#512ed, "#%5e 2he 1$1/e 41!;e2 #" #4#2ed 2$ 1 5e!21#% 51"" $& 2!1%"152#$%" -- $!,
82 1%$2he! 10, #2 #" de"#7%ed 2$ e658de 5e!21#% 2!1%"152#$%", e"e5#10 2he 8!5h1"e /0
!e"#de%2" $& &$!e#7% %1%5#1 1""e2". I2 2he!e&$!e !e:8#!e" "$4e de21#ed !8e" 1%d 5$"e
4$%#2$!#%7, 2$ !e3e%2 2!1%"152#$%" "8$"ed0 41de &$! 58!!e%2 8!$"e" &!$4
5$%5e1#%7 h12 #% &152 1!e 51#21 2!1%"152#$%".
Wh#e 5$%3e!2#/##20 "2!#520 !e&e!" 2$ 2he &!eed$4 2$ 8!5h1"e &$!e#7% e65h1%7e
&$! d$4e"2#5 58!!e%50, 5$%3e!2#/##20 $8d %$2 /e e5$%$4#510 4e1%#%7&8 #& #5e%"#%7
e!e !e:8#!ed &$! 2he 152#3#2#e" 2h12 !e:8#!e &$!e#7% e65h1%7e, e.7. #4$!2#%7 7$$d" $!
"e!3#5e". I% h12 &$$", 2he!e&$!e, I # 8"e 5$%3e!2#/##20 #% 2he e5$%$4#510
4e1%#%7&8 "e%"e, !12he! 2h1% #% 2he %1!!$0 e71 "e%"e, $& 2he 2e!4. Th12 #",
5$%3e!2#/##20 51%%$2 /e 5$%"#de!ed #%dee%de%20 $& 2he 155$41%0#%7 !e7#4e &$!&$!e#7% 2!1de. I% 1!2#581!, 1 58!!e%50 #" de facto5$%3e!2#/e #& $8d-/e #4$!2e!" &$! 1
#de !1%7e $& 7$$d" $! "e!3#5e" 1!e &!ee 2$ /80 &$!e#7% e65h1%7e 1%d 2$ #4$!2 #2h
4#%#41 !e:8#!e4e%2", $""#/0 "8/
8/12/2019 Bretten Wood System Final
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#" %e3e! $#2#510 $81! 1%d #& #2 e!"#"2", #2 1" #de0 /e#e3ed, 2$ "$e! 7!$2h #%
2he $%7 !8%.
The 12e!%12#3e #" 2$ 12e! 2he !12e $& e65h1%7e /e2ee% h$4e 1%d &$!e#7% 58!!e%50
/0 e%$87h 2$ "2$ 2he $82&$ -- e#2he! /0 1$#%7 #2 2$ &$12, $! /0 de!e5#12#%7 /0 "$
485h 2h12 41!;e2 1!2#5#1%2" /e#e3e #2 # de!e5#12e %$ &8!2he!, 2h12 #4$!2ed 7$$d"
/e5$4e "$ e6e%"#3e #% h$4e 58!!e%50 2h12 de41%d &$! 2he4 # &1 "#7%#3%20, 1%d
2h12 e6$!2" /e5$4e "$ !$/e 2h12 2he#! "80 # #%5!e1"e "#7%#3%20 >$!,
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8/12/2019 Bretten Wood System Final
18/19
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19/19
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