Conclusion On Bretton Woods System ...

The future of the system of Bretton Woods
During the last five to ten years especially the system of Bretton Woods has been topic of many public discussions with controversial opinions. Human rights activists argue that the programmes for the structural adjustment of the developing countries initiated by the World Bank and the IMF led to a “thirdworldisation” of the East-bloc states, which means that they dramatically increased poverty in those countries. Large-scale agrarian and industrial projects destabilised national economies, destroyed the environment and social patterns. It is pointed out that the inner structure of the Bretton Woods institutions, where the right to say is proportional to the amount of money that each country contributes, is symbolic of the
capitalistic ideology, which completely ignores the interests of the people living in developing countries.12 Thus, human rights activists demand that the IMF and the World Bank stop interfering in national policies of sovereign countries. The World Bank is well aware of the problems that can be caused by projects in less developed areas. It reacted by providing the possibility to file requests to an Inspection Panel. A person that files a request to the World Bank has to show that he/she lives in the project area and will most likely be affected negatively by activities related to the project. These negative effects must be caused by a failure from the World Bank to follow its policies and procedures. Additionally, the request must have been discussed with the Bank management with an unsatisfactory outcome. In
contrast to these discussions the major industrialised nations have begun to worry about the implications of the growing size and the speculative nature of financial movements in times of globalisation. Calls for a “new system of Bretton Woods” could be heard in almost every industrialised country. In 1996, Michel Camdessus, the Managing Director of the IMF, stated that even though the monetary system had changed since 1944 the goals of Bretton Woods were as valid today as they had been in the past. He underlined that international cooperation would be required to create a new Bretton Woods system, which in his point of view means that “ countries must make a greater effort to understand the economic policies of other countries and that they must listen to the judgement of others about their own national
policies. It also means that they must take a more enlightened view of their own national interests, recognizing that it is in their own self-interest to take the interests of other countries into account."

Conclusion

The system of Bretton Woods of 1944 with its fixed exchange rates does not exist anymore today. Its institutions and procedures had to adjust to market forces to survive but still its goals are as valid today as they have been in the past.
The benefits of the Bretton Woods system were a significant expansion of international trade and investment as well as a notable macroeconomic performance: the rate of inflation was lower on average for every industrialised country except Japan than during the period of floating exchange rates that followed, the real per capita income growth was higher than in any monetary regime since 1879 and the interest rates were low and stable.It has to be noted that leading economists nowadays argue “whether macroeconomic performance stability was responsible for the successes of Bretton Woods, or the controverse.” Weaknesses of the system were capital movement restrictions throughout the Bretton Woods years (governments needed to limit capital flows in order to have a certain extent of control) as well as the fact that parities were only adjusted after speculative and financial crises.
Another negative aspect was the pressure Bretton Woods put on the United States, which was not willing to supply the amount of gold the rest of the world demanded, because the gold reserves declined and eroded the confidence in the dollar.

What are the implications of the Bretton Woods experience for future international monetary relations? “

The most important implication is that simply stabilizing exchange rates is not
sufficient to automatically deliver the benefits trumpeted by the proponents of such an initiative.”It is crucial that national economic policies (i.e. budget deficits) and economic outcomes (i.e. inflation) converge to a certain extent before countries decide to fix exchange rates. However, a short term divergence of policies is not detrimental for the functioning of such a system, it is rather a credible commitment to fixed exchange rates that ensures its stability. It can be concluded that ambitious international monetary reforms like the system of Bretton Woods can only work if they are integrated into wider economic and political convergence. With this fact in mind it is easy to understand how far the world with its various countries and living standards, policies, and economies is from a “new system of Bretton Woods”, that can overcome its previous weaknesses.