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The Bretton Woods Agreement - Case Study Example

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This paper "The Bretton Woods Agreement" discusses the progress of the Bretton Woods agreement. Being the economic and military superpower, it used its influence in ensuring that they would actively participate in the global economic sphere as a major player…
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The Bretton Woods Agreement
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Download file to see previous pages It was this in this meeting gathering that the Bretton Woods system was born.

Initially, this has initiated an acceleration of global activity. However, as the system progresses, its flaws surfaced out so intensely that the former United States President Richard Nixon sentenced it to its demise in August 1971. Though the International Monetary Fund and the World Bank, two financing institutions that were born because of the system are still existent, the initial system that they adopted were substantially altered by Nixon’s cessation of a gold standard.

Adam Smith, the father of economics, and his contemporary thinkers have started recognizing and studying the benefits of international trade and capital mobility. Though overseas trading has already been practiced centuries earlier before their era, there was no formal academic and scientific study for this. Smith, in his pioneering investigation on the British economy, has plotted out a fertile condition for nations to maximize their gains: the presence of a sufficiently functioning international monetary system that promotes and facilitates trade and efficient allocation of capital (Ferderer, 2002, p.1). The 18th century admired the prospects for mutual gain that they get from free trade between nations (Understanding economics, 2006).

In the past 200 years, capital mobility in large quantities and allocation of these to lucrative and promising investments became a tool that altered the standard of living. The effectiveness of financial institutions should then be measured by the contributions that they give to this process and eventually to a country’s growth and employment (Eatwell & Taylor, 1999). They should then adopt a financial system that will facilitate the flow of capital and investment.

In 1717 Sir Isaac Newton ‘accidentally’ adopted a de facto gold standard that later became the monetary regime in those times. The renowned scientist, a master of the mint, set the gold price for silver at a level lower than that of the market, thus causing the disappearance of silver coins from the circulation.  ...Download file to see next pagesRead More
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