Introduction
When delegates from all the 44 allied nations met at Bretton Woods in 1944 with the main objective of regulating the money system globally, they did not consider the mishaps that would hit the financial market in the near future. The conference took place just after the end of World War II and several agreements were signed by the member states to set up monetary systems. Some of these systems included the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD).
Purpose Of The System
The period that marked the end of World War II was characterized with a lot of financial insecurity in most countries. The quest to revert to the old financial stability situation that saw the use of the gold standard before the war was apparent. However, the economy was hit by a major economic depression which led to international deflation resulting in unemployment, liquidation of businesses and collapse of credit institutions. The need to stabilize the system became obvious leading to world leaders gathering at Bretton Woods. The conference, which saw major principles such as John Maynard Keynes and Harry Dexter White, was aimed at achieving a fixed system of exchange rate currencies acceptable to all nations. The exchangeable currency rate was pegged to the dollar which in turn could be converted to gold. The new exchange rate aided nations that faced hard economic times to devalue their currencies against the dollar with the approval of IMF (Kirshner et.al, 1996). The establishment of the International Monetary Fund and World Bank encouraged open market in nations while enjoying low barriers of trade and capital.
Role Of IMF and International Monetary Systems
To achieve a regulated international monetary system, the delegates are required to set up a standard system with set rules and procedures to govern the system. Among the established institutions were the General Agreement on Tariffs and Trade (GATT) which was aimed at liberalizing the trade process between countries, the IBRD which came to be called the World Bank and IMF which made finances available to countries. However, the institutions set up at Bretton Wood have taken a different turn of events over the years (Hisrich, 2009). GATT for example has become stronger since its inception with more member states enrolling for membership. The World Bank on the other hand has developed major prominence especially in 3rd World countries as the leading long time lender. The IMF system structure has become weaker in its role of establishing payment imbalances. The abandonment of fixed exchange rates especially by leading financial countries made it ineffective.
The Impact of Global Financial Crisis Of 2008
The year of 2008 marked a turning point of the economy when a major financial crisis hit most countries. High rate of unemployment hit most states with more than 6% and the Federal Reserve was forced to cut down drastically. Big industries were faced with major crisis forcing most of them to collapse. Crude oil for example closed with more than $150 per barrels, a situation that was unheard of. It marked the worst year in the stock markets with companies such as Dow Jones losing up to 22%. The international monetary system proposed at the Bretton Woods did nothing to salvage the situation. The policy makers rendered the policies implemented at the Bretton Woods to be ineffective has called for an immediate action to restructure the international monetary systems. The currency exchange rate should be reviewed to create a standard currency valuation in both the developed and developing countries (Shammah, 2009).
Conclusion
The policies set down at the Bretton Woods Conference were aimed at streamlining the world trade industry by setting down international financial systems to serve the purpose. However, there is need to set up a new system that will be able to integrate the current financial situation in all the nations.
Reference List
Hisrich, R. (2009) International Entrepreneurship. London: Sage Publications.
Kirshner, O et.al. (1996) The Bretton Woods-GATT System: retrospect and prospect after fifty years. New York: M.E Sharp, Inc.
Shammah, S. (2009) A Foreign Exchange Primer. England: John Wiley & Sons Ltd.