The Bretton Woods System

Abstract

Abstract Did the Bretton Woods system generate international financial stability, seal its fate, or both? What was the role of the dollar as the key international currency? The Bretton Woods system reestablished fixed exchange rates with central role for the US dollar as the key reserve currency. The system attempted to balance international integration and policy independence. International capital controls were imposed. The deflationary pressures of adjustment to deficits under fixed-exchange-rate systems were disdained. Adjustment under the Bretton Woods system was challenging or impossible. Leaders had hoped that an international organization like the International Monetary Fund would promote cooperation, but the IMF was largely ineffective. The system that resulted placed the US dollar at the center of the global financial system, producing many unanticipated consequences. By 1971 the dollar had to be devalued, and the system had met its demise.