Challenges Facing Bretton Woods System ALONG WITH THE IMF

During the globe War II most countries of the world finally eliminated the remains of gold standard, it had not been possible to switch national fund as free anymore. Strict limitations of foreign currency were entered for national settlement of accounts and capital flow. The purchasing power and par of monetary standard broke from each other because of the aftereffect of inflation. Only in the United States the limitations of foreign currency did not change substantially and the majority of the world's gold drifted to the United States. Economists realized to determine such a forex system, which compensates partly the scarcity of gold and additional facilities for the operating of the increasing international trade. Being noticed, that the international currencies (to begin with the united states dollar) became more important than the gold as a world money.

In 1930s the exchange rate is one of the main appliances in the concurrence of global trade. That's why they took the stability of exchange rates one of the main element role in the new system, and the liabilities of the governments, which they assign the items of cash-flow at least between your relatively fix exchange rates free changes. They came to the agreement again that the monetary role of gold tends to be stay static in the new system. The Bretton Woods System was established in the conference of Bretton Woods, New Hampshire, United States since 65 years in World War II where 730 delegates from 44 allied countries negotiated and agreed it, which means world monetary system. The primary point of the system was that the strongest commercial states of the world were managed the commercial and financial relations. The monetary system of Bretton Woods builds at least three main principles. First is the quotation that all dollars would be changed into gold at $ 35 per ounce. Which means dollar was the common unit of most exchange rates. Second, stability of exchange rate involves fixed exchange rates and the exchange rates of market, that could permit to go its exchange rate in ± 1% of par, but if it exceeds this par then respect to intervene. When the exchange rate is more than 10% the permission of IMF was required of course, if less than 10% it is under the power of nation. The last some may be the convertibility, which liberalize current balance of payment, but can be maintained the restrictions of movements of capital.

It can be told, that the first monetary system, where in fact the national credit money is based on international utilization, which means the Bretton Woods. Within the Bretton Woods established the International Monetary Founds (IMF) in 1946 to modify the international monetary system, which most governments agreed to fix exchange rates. This organisation was dependant on the identification of Keynesian model, that the markets do not work perfectly. IMF was established to pay the scarcity of liquidity from the imperfect working of markets. At present the memberships of IMF expanded to 186 countries and researches say that "attempting to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable monetary growth, and reduce poverty throughout the world".

The aims of IMF's institution are

The insurance of international trade balance to its growing

Contribution of rate stability

Participate in establishment of multilateral system between members of countries

Contribute the abolishment of exchange restrictions, which it blocks the rising of world trade

Insurance of financial resources for the members of countries and adjust to correct the payment of scale position for commercial and pay restrictions without return

Cooperation with the international monetary problems and ensure the opportunities of consultation forum

Consequently, the IMF not only handles the issues of individual countries however the whole working of international monetary system too. His work concentrates for those members of politics and strategy perspective across which members of IMF can cooperate for their stable of fiscal system and financial growth.

The relationship between contractors requires international commercial exchange. Task of the monetary authorities is that they care for newly emerging balance of payment of the protection of deficits in interstate relation and the defence of exchange rate. If the same seller accepts an exchange rate but it is undesirable for him then your monetary authorities must be repurchase it against of key currency (gold or $). Essentially, key currency and commercial currency differentiated from the other person in this technique. The $ in a position to infuse the full total function of the world money: commercial and reserve currency in the same way.

However, the other members of global economy don't be assessed in establish to simply accept $ such a way of payment they can attempt to get rid of dollar. Within this Bretton Woods system people can transform with goods, which means demand of gold.

A few years later the Bretton Woods system collapsed in more causes. The financial expansion of capitalist countries brought a finish of USA's superiority. Western Europe and Japan have developed increasingly plus they began to start the positions of $. After that, stood apart the contradiction between internationalization of global economy and controlling national characteristics of monopolistic state. The main problem is that governments expended the appliances of national credit and budgetary act because of their saving of internal economic problems that do not depend on monetary system. Therefore the aims of national regulation experienced trouble with the requirements of stability of sphere of currency.

The Bretton Woods system had technical insufficiencies too. They didn't build any mechanism in to the system, which would intercept the chronic difference of national inflation rate. The machine was struggling to harmonise the official exchange monetary parity from the variable par of purchasing power, which tended to devaluation and revaluation. There were no optimal international liquidity mechanisms; which means system was struggling to establish the total amount of payments.

From 1967 broke out cyclical crisis and the big national currencies was going to be depreciate. In 1973 the machine became deformed and bankrupt. These six many years of cyclical crisis caused non-reversible changes for the gold - $ standard of characteristic feature.

Afterwards, the members of IMF have had the opportunity to choose every other forms of exchange arrangements what they wish except the currency of gold. The goal is to maintain the stable system for buying and selling the variable currencies that the payments of forex operate easy immediately between countries. From mid of 1970s, The IMF lends money for members that it presents some difficulty to observe the financial commitments for other members to execute economic and governmental reforms. The organization established a Trust Fund to help borrowing for the world's poorest countries. Starting in 1986 the repayments of loans financed the Structural Adjustment Facility (SAF).

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