The Bretton Woods system is an international monetary policy that was adopted by various countries across the word. This system required countries to maintain their exchange rate within a given value by comparison with gold. The system was set up in 1944 by delegates from some 44 nations in Bretton Woods, New Hampshire. Upon establishment of the Bretton Woods System some international organizations were also set up: the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT) and the International Bank for Reconstruction and Development (IBRD). The agreement sought to act in favor of the public good of all member nations. This is especially because of the fact that the members were to agree and consult on any monetary changes that affected the international community (Iwami, 164).
The agreement also outlawed some economic practices. This included all practices that were deemed to be harmful to the prosperity of the world in general. The system was also considered a public good since it sought to solve any difficulties experienced in foreign exchange by the member counties. The systems also led to the formation of the World Bank from the IBRD. The World Bank and IMF have helped numerous developing countries to overcome their short term budgetary deficiencies (Eichengreen, 204).
Furthermore, they help such countries to carry out large projects that require extreme capital expenditure, by provision of affordable and considerable loans. These Bretton Woods institutions have also helped numerous nations to transition from one type of economy to another especially in countries that were previously communists. The transition involves changing from a state controlled economy to one that is free market (James, 784).
Multi state cooperation that seeks at promoting public goods are normally very difficult to maintain since member countries in such organizations or systems may have different roles. The problem usually arises where one or two member countries have a stronger say or a more dominant role than others (Dormael, 301). This means that the whole systems lacks democracy and many decisions made by the corporation may be biased towards such dominant nations. This was the case with the Bretton Woods system that collapsed in the early 1970s due to making the US dollar the international reserve currency over what had initially been set as gold. This was due to the fact that US was a dominant economy in the 20th century (Stevenson, 245).
Disagreements over the par value system are mainly responsible for failure of systems that aim to establish public good in the international economies. From a liberal point of view the setting up Bretton Woods institutions encouraged the opening up economies from the previous nationalism policies. This created a new platform for investors to carry out business transactions in foreign economies. This was especially beneficial to third world countries that needed such capital ventures to create room for employment, and even increase competition in the provision of basic goods and services. Eventually, this led to a reduction in monopolistic ventures in both developing and developed countries (Krause, 124).
The work of development in underdeveloped nations is limited due to lack of strong governmental institutions to ensure efficient appropriation of any loans or grants. This has discouraged Bretton Woods Institutions from allocation funds at low interest rates. However, some nations continue to receive funds despite the fact they are economically stable. Bureaucracies exist in Bretton Woods institutions, and the pecking order is still a huge determinant of how things are run (Cavanagh, Daphne and Marcos, 130).
Works Cited
Cavanagh, John, Daphne Wysham, and Marcos Arruda. Beyond Bretton Woods: alternatives to
the global economic order. London: Pluto Press ;, 1994. Print.
Dormael, Armand van. Bretton Woods: birth of a monetary system. New York: Holmes & Meier
Publishers, 1978. Print.
Eichengreen, Barry J.. Three perspectives on the Bretton Woods System. Cambridge, Mass.:
National Bureau of Economic Research, 1992. Print.
Iwami, Tōru. The Bretton Woods system as a gold exchange standard. Tokyo, Japan: Faculty of
Economics, University of Tokyo, 1991. Print.
James, Harold. International monetary cooperation since Bretton Woods. Washington, D.C.:
International Monetary Fund ;, 1996. Print.
Krause, Lawrence B.. Sequel to Bretton Woods; a proposal to reform the world monetary system.
Washington: Brookings Institution, 1971. Print.
Stevenson, Jonathan. Preventing conflict: the role of the Bretton Woods institutions. Oxford:
Oxford University Press, 2000. Print.
