81 years ago today, on July 22, 1944 (June 3, 1944 lunar calendar), the "Bretton Woods system" was established. On July 22, 1944, the "Bretton Woods system" was established. What is the Bretton Woods system The Bretton Woods system refers to the agreement on the international monetary system centered on the US dollar after World War II. The Bretton Woods system is the agreement on the conversion of currencies, the adjustment of the balance of payments, the composition of international reserve assets and other issues. The sum of the rules, measures and corresponding organizational forms determined by the agreement. The history of the Bretton Woods system In the 20 years between the two world wars before the Bretton Woods system, the international monetary system was divided into several competing currency blocs, and the currencies of various countries were devalued and volatile, at the expense of others, to solve their own balance of payments and employment problems, and to show anarchy. After the world economic crisis of the 1930s and World War II, the economic and political power of various countries underwent major changes. Germany, Italy, and Japan were defeated and the national economy was devastated. The British economy was severely damaged in the war and its strength was greatly weakened. By contrast, the economic power of the United States increased dramatically and became the largest creditor nation in the world. From March 11, 1941 to December 1, 1945, the United States provided more than $50 billion worth of goods and services to its allies under the "Lend-Lease Act." Gold continued to flow into the United States, and America's gold reserves increased from $14.51 billion in 1938 to $20.08 billion in 1945, accounting for about 59% of the world's gold reserves, and became the leader of the capitalist world. The international status of the US dollar has never been more stable because of the huge strength of its international gold reserves. This makes it possible to establish an international monetary system with the US dollar as a pillar that is conducive to the expansion of the US foreign economy. The United States argued that "after a very short transitional period, protective tariffs, trade limits, and various forms of financial barriers such as competitive currency devaluation, multiple exchange rates, bilateral settlement agreements, and measures to restrict the free circulation of currencies should not be allowed to exist." But at that time, the pound was still one of the world's main reserve currencies, about 40% of international trade was settled in pounds, the preferential system and the sterling area still existed, and the United Kingdom still maintained a considerable position in the world. Therefore, in 1943, White, a US Treasury official, and Keynes, a consultant to the British Treasury, respectively designed the postwar international monetary and financial system based on their own interests, and proposed two different plans, namely the "White Plan" and the "Keynes Plan". " The White Plan "advocates the abolition of foreign exchange controls and restrictions on international fund transfers by various countries, and the establishment of an International Stability Fund to issue an international currency, with national currencies maintaining a fixed parity with it, that is, the fund currency is pegged to the US dollar and gold. The currencies of member states must maintain a fixed parity with" Unita ", and the currencies of member states cannot be devalued without the approval of three-quarters of the voting rights of the" fund "member states. The "Keynes Plan" started from the lack of gold reserves in the United Kingdom at that time, and advocated the establishment of a world central bank to settle the claims and debts of various countries through its deposit account transfer. In July 1944, the International Monetary and Financial Conference of the United Nations and the Union Countries was held in Bretton Woods, New Hampshire, USA, with 44 countries participating, and adopted the "Final Resolution of the United Nations Monetary and Financial Conference" based on the "White Plan" and the "International Monetary Fund Agreement" and the "International Bank for Reconstruction and Development Agreement" two annexes, collectively known as the "Bretton Woods Agreement". Established the second international monetary system of mankind after the collapse of the gold standard. In this system, the US dollar is pegged to gold, and the United States undertakes the obligation to exchange gold at the official price. The currencies of various countries are pegged to the US dollar, which is at the center and plays the role of the world currency. In fact, it is a new gold exchange standard. In the Bretton monetary system, the role of gold in both circulation and international reserves has been reduced, and the US dollar has become the protagonist of this system. But because gold is the last barrier to stabilize the monetary system, the price and flow of gold are still strictly controlled. Countries prohibit residents from buying and selling gold freely. It is difficult for the market mechanism to function effectively. The London gold market was restored ten years after the establishment of the system. The core content of the Bretton Woods system is the establishment of the international monetary fund (IMF), which is responsible for providing credit support for the short-term balance of payments deficits of member states through joint negotiation on monetary affairs; the US dollar is pegged to gold, and the currencies of member states are pegged to the US dollar, and an adjustable fixed exchange rate system is implemented; foreign exchange controls on current account transactions are abolished. The "Bretton Woods system" established two major international Financial Institution Groups, namely the international monetary fund (IMF) and the World Bank (WorldBank). The former is responsible for providing short-term funds to member states for the purpose of ensuring the stability of the international monetary system; the latter provides medium- and long-term credit to promote the economic recovery of member states. The responsibilities of the issuer of the US Federal Reserve's paper currency reserve currency The basic responsibilities of the United States as a reserve currency issuer are twofold: 1. The Federal Reserve guarantees that the US dollar will be exchanged for gold at the official price and maintains the confidence of the member states of the agreement in the US dollar. 2. There is an inherent contradiction in providing enough US dollars as an international means of settlement: if the supply of US dollars is too large, it cannot be guaranteed to be fully exchanged for gold, and if the supply is insufficient, the international means of settlement will be insufficient - this is the "Triffin Mystery". The role of the Bretton Woods system established a fixed exchange rate system pegged to the US dollar and gold at the meeting, ended the chaotic international financial order, created favorable external conditions for the expansion of international trade and the growth of the world economy. The US dollar, as a reserve currency and an international means of repayment, made up for the lack of gold, improved global purchasing power, and promoted international trade and cross-border investment. [edit] The basic flaws of the Bretton Woods system The liquidity of the US dollar and confidence in the US dollar constitute contradictions, which are manifested as the contradiction between the reserve status of the US dollar and the international liquidity, the asymmetry of policy coordination between the issuing countries of the reserve currency and the non-reserve currency, and the dilemma between internal and external goals under the fixed exchange rate system. The exchange rate system is rigid, and it is impossible to automatically achieve the balance of payments through exchange rate fluctuations and adjust international payments The main responsibility for the imbalance of payments falls on the side of the non-reserve currency issuers, at the expense of their economic development goals. The collapse of the Bretton Woods system. 1. The flaws of the system itself. The root cause of the collapse of the international monetary system centered on the US dollar is that the system itself has an inextricable contradiction. Under this system, the US dollar functions as the world currency as a means of Global Payment and an international reserve. On the one hand, as a means of Global Payment and international reserve, the dollar requires a stable value of the dollar in order to be generally accepted by other countries in Global Payment. And the stability of the dollar currency requires not only that the United States has enough gold reserves, but also that the US balance of payments must maintain a surplus, so that gold continues to flow into the United States and increase its gold reserves. Otherwise, people are unwilling to accept dollars in Global Payment. On the other hand, the world needs to obtain sufficient foreign exchange reserves, and the US balance of payments needs to maintain a large deficit, otherwise the world will face a shortage of foreign exchange reserves and a shortage of Global Payment means in international circulation channels. But as the US deficit increases, the gold guarantee of the dollar will continue to decrease, and the dollar will continue to depreciate. After the Second World War, the shortage of US dollars to the flood of US dollars was the inevitable result of this contradictory development. 2. The dollar crisis and the US economic crisis broke out frequently. The capitalist world economy went from one to the other, and the dollar crisis was the direct cause of the collapse of the Bretton Woods system. (1) The US gold reserves decreased. The US launched the Korean War in 1950, the overseas military expenditure increased greatly, the balance of payments was in deficit for many years, and the gold reserves were flowing out. In 1960, the US gold reserves fell to 17.80 billion dollars, which was no longer enough to cover the current debt of 21.03 billion dollars at that time, and the first crisis of the US dollar appeared. In the mid-1960s, the US was involved in the Vietnam War, the balance of payments further deteriorated, and the gold reserves continued to decrease. In March 1968, the US gold reserves had fallen to $12.10 billion, while the external short-term liabilities for the same period were $33.10 billion, triggering the second dollar crisis. By 1971, the US gold reserves ($10.21 billion) were only 15.05% of its external current liabilities ($67.80 billion). By this time, the United States had completely lost the ability to exchange dollars for gold. Therefore, President Nixon had to announce on August 15, 1971 that he would stop accepting the obligation to exchange dollars for gold. In 1973, the most serious economic crisis broke out in the United States, and the gold reserves had dropped from $24.56 billion in the early postwar period to $11 billion. 'The lack of sufficient gold reserves as a basis seriously shakes the credibility of the dollar. (2) Inflation in the United States has increased. The United States launched the war of aggression against Vietnam, and the fiscal deficit was huge, which had to be compensated by the issuance of currency, causing inflation. Coupled with the two oil crises, the price of oil increased and spending increased; at the same time, due to the increase in unemployment subsidies and the decline in labor productivity, government spending increased sharply. The US consumer price index was 1.6% in 1960, rose to 5.9% in 1970, and rose to 11% in 1974, which brought a huge impact on the exchange rate of the dollar. (3) The US balance of payments continued to be in deficit. At the end of World War II, the United States took advantage of the economic strength that had expanded during the war and the opportunity for other countries to be weakened by the war to export goods to Western Europe, Japan, and other parts of the world on a large scale, so that the US balance of payments continued to run a huge surplus, and other countries' gold reserves flowed into the United States in large quantities. The "Dollar Shortage" is widely felt in various countries. With the growth of the economies of Western European countries and the expansion of export trade, their balance of payments has turned from deficit to surplus, and their dollar and gold reserves have increased. Due to the foreign expansion and war of aggression of the United States, the balance of payments has turned from surplus to deficit, and a large amount of US funds have flowed out, forming a "Dollar Glut". This has caused the exchange rate of the US dollar to bear huge shocks and pressures, and it has continued to fluctuate downward. The end of the Bretton Woods system was in the 1960s and 1970s, when several dollar crises broke out. After that, the Smithsonian Agreement in December 1971 marked the devaluation of the dollar against gold. At the same time, the Federal Reserve refused to sell gold to foreign central banks. At this point, the system of pegging the dollar to gold existed in name only. The dollar depreciated further in February 1973, and the world's major currencies were forced to implement a floating exchange rate system due to speculators. So far, the Bretton Woods system has completely collapsed. But it was not until 1976 that the international community reached the "Jamaica Agreement" with the legalization of floating exchange rates and the demonetization of gold as the main content. After the collapse of the Bretton Woods system, the international monetary fund and the World Bank still exist and play an important role as important international organizations.