Bretton Woods System

Bretton Woods System of Monetary Management established the rules for financial and monetary relations among the world's major industrial states in mid 20th Century. It was the first fully negotiated plan of its kind so as to govern and emphasize the monetary stimulus of the global economy. The International Monetary Fund(IMF) was established by the planners of the Bretton Woods so as to regulate international monetary activities.

The basic feature of this Management System was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a predefined fixed value with minor deviations. Considering US Dollar as the major Currency of exchange, the allied countries had to exchange the funds through US Dollar so as to maintain currency approximation.

The basic aim of Bretton Woods was to disburse power and influence among the countries and to bring out countries ready to lead the global economy after Great Depression and World War 2. In initial times the favored mechanism was to impart Capitalism. For a pur Capitalistic Economy intervention of public sector was very important. In initial cases France demanded for state intervention leading to a lesser Capitalistic environment.

All the participating governments at Bretton Woods agreed that the monetary chaos of the interwar period had yielded several valuable lessons.

So as to keep the global economy away from the chaos it has just emerged from. So as to implement this strategy many of the most vital trading options were to be sacrificed. Trade in the 1930s became largely restricted to currency blocs. These blocs retarded the international flow of capital and foreign investment opportunities. Although this strategy tended to increase government revenues in the short run, it dramatically worsened the situation in the medium and longer run.

Seeing and experiencing the above impact, countries started to consider the importance of Government Intervention in Economic matters.

The various activities included in the Charter of Bretton Woods System are:

1. To understand and simplify Fixed Rate Changes.
2. To understand the complexity of Trade.
3. To design a Charter for effecient working of International Monetary Fund.
4. To plan Financing of Trade Deficits.
5. Reconstruction and Development of Developing Nations.

Bretton Woods was a very important part in restructuring of Financial and Economic global system. But it had an implication which led to high imbalance in Balance Of Payments. Also the Dollar to Gold ratio started to weakening when France demanded Gold supervised by US. There were many other factors and many more implications.

So as to mitigate the above condition's impact a parallel monetary system was implemented for all Traded Funds by International Monetary Fund(IMF). The system till now is implemented and various consequences have been handled successfully with an active cooperation and assistance with leading NGOs.

Bold Actions Of G20 London Summit

As I recognize it, there remains a debate between those who believe that the current economic environment compels a dramatic rethink of the foundations, systems and structures upon which the global economy operates, and those who believe that such sweeping reforms are both unnecessary and politically impossible.

In short, there are those who seek to begin the process of crafting a ‘new Bretton Woods’ and those who seek to ban the use of that phrase altogether.

In my earlier post, I wrote(scribbled) about "the global financial sector is in need of structural reform". I believe that the current economic crisis provides an opportunity to reshape the global financial system in ways that more accurately reflect the global nature and risks inherent in 21st-century banking, finance and capital flows.

This G20 gathering represents a true ‘free market’ where there is competition for ideas, creativity and leadership. It provides the perfect opportunity for a 21st-century successor to the intellectual and creative leadership of John Maynard Keynes to emerge.
To be successful, it is imperative that the United States play an active leadership role at the London Summit. The US has a unique role. The failure of the US to assume a leadership role, especially with the presence of President Obama, would undoubtedly be seen as an
opportunity missed.

The most innovative and bold structural proposals have come from Europe, where a recent report by the High Level Group on Financial Supervision in the EU, under the direction of Jacques de Larosière, contains some very worthy, realistic and detailed recommendations.
Unofficial groups, such as the G30 Financial Reform Working Group chaired by Paul Volcker, have similarly issued reports which I urge summit participants to review carefully and consider seriously.
The proposal is important because it seeks to address the systemic nature of risk, which underpins the existing financial system, and also because of its inherent inconsistency.
Given the magnitude and scale of the issues now confronting summit participants, those officials tasked with its preparation should not feel bound to adhere strictl to the agenda and working groups created four months ago.
Now is not the time for caution, but rather the time for bold assertion of leadership, ideally by the United States, but hopefully with the collective support of the global community.