What Was The Collapse Of The Bretton Gold System In The United States?

1944 was the year that the Bretton Woods and the International Monetary Fund were formulated. A system that was devised after the Second World War by the United States, United Kingdom and 42 other nations after the war. The Bretton Woods system fixed the dollar to the price of gold and created an international platform for currency exchange.

Before this system was implemented, the gold standard was in operation from 1880 to 1914. Under this, each nation was to define the gold content of its currency and stood ready to buy or sell gold at this price. This was indicative of fixed currencies and exchange rates which were determined by the forces of demand and supply. The start of World War I signalled the end of the gold standard. There followed a period of great instability which included the devaluation of the dollar and implementation of tariffs and import restrictions.

In 1947 the Bretton
In 1971 President Nixon announced the suspension of the dollars convertibility into gold. Come 1973, the world saw the collapse of the Bretton Woods system altogether. The immediate cause of the collapse was due to the huge balance of payment deficits of the United States during 1970 and 1971, the fundamental cause however is related to problems of liquidity and confidence. Liquidity which refers to the amount of international reserves (which include holdings of gold and foreign exchange) supplied in relation to the demand. International liquidity is required so that nations can finance temporary deficits without trade restrictions. By the end of the Bretton Woods system and during 1971, the United States saw the lowest gold price and highest foreign exchange value since the 1960s. The United States was unable to correct their continuous deficits due to the inability to devalue the dollar and because this deficit problem persisted this undermined confidence in the