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The Bretton Woods rules, set out in the treaty articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a system of fixed exchange rates. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to free trade. Another goal of the deal was to avoid any form of trade war. The Bretton Woods system was established after World War II and existed between 1945 and 1972. In 1944, representatives of 44 nations met in Bretton Woods, New Hampshire, and designed a new post-war international monetary system. This system advocated the introduction of a stock market standard including both gold and currencies. Under this system, each country has set a nominal value against the U.S. dollar, tied to gold at $35 per ounce. Under this system, the reserve currency country would aim to maintain a balance of payments deficit (BOP) to replenish reserves. If such deficits were to be very large, the reserve currency itself would experience a crisis. This situation has often been described as the paradox of encounter. Finally, in the early 1970s, the gold standard system collapsed for these reasons.

Beginning in 1950, the United States faced trade deficit problems. With the evolution of the euro markets, there have been huge outflows of dollars. The U.S. government has taken several dollar defense measures, including the introduction of the Interest Compensation Tax (EIT) on foreign stock purchases in the United States, to prevent dollar outflows. The International Monetary Fund created a new foreign exchange reserve called Special Drawing Rights (SDRs) to reduce pressure on the dollar, which was the central reserve currency. Originally, SDRs were modelled as a weighted average of 16 currencies of these countries, whose share in world exports was greater than 1%. In 1981, the SDRs were restructured to form only five main currencies: the US dollar, the German mark, the Japanese yen, the pound sterling and the French franc. CSDs have also been used as a unit currency for international transactions. But the dollar-based gold standard could not be maintained in the context of rising inflation and monetary expansion. In 1971, the Smithsonian Agreement, signed by the Group of Ten Major Countries, made changes to the gold exchange standard. The price of gold was raised to $38 an ounce. Other countries have valued their currencies up to 10%.

The exchange rate fluctuation band was increased from 1% to 2.25%. But the Smithsonian agreement proved ineffective and the Bretton Woods system collapsed. Financial crises during the U.S. term President Richard Nixon led to the end of the Bretton Woods system. During these years, the amount of dollars held abroad exceeded the value of gold reserves held by the United States, at Fort Knox and elsewhere. This undermined the premise of the deal, which is that the US could still get its dollars back with its gold counter-value. A devastated Britain had little choice. Two world wars had destroyed the country`s main industries, which paid to import half of the country`s food and almost all its raw materials except coal. The British had no choice but to ask for help.

It was only when the United States passed, on the 6th The British Parliament ratified the Bretton Woods Agreements (which was the case later in December 1945), granting $4.4 billion in aid to Britain. [24] The Bretton Woods Agreement of 1944 created a new global monetary system. It replaced the gold standard with the U.S. dollar as the world currency.