The main cause of collapsing of the Bretton woods system Essay

The main cause of collapsing of the Bretton woods system - Essay Examplere of the system was a promise each pastoral made to each that their monetary policies would keep the currency of the country close to a fixed value (within 1%) to gold. The IMF would have the authority to close temporary payment imbalances amidst countries and would monitor the fiscal activities of other nations. While the system worked well for several years, it collapsed in 1971 once the United States pulled out from the gold standard (Bird, 1994).The simplest cause of misfortune in economic terms is that the system was useful for the time it was created but it was far too optimistic of the creators of the systems that all other things would remain the same. Without a doubt, economic realties change for us on a daily basis even though the majority of economic activity can be explained by the help of supply and demand. The creators of the system thought that the system would be large enough to control and contain commercialize forces and economic systems but they learnt quickly that while market forces take the upper hand to established systems.While the final cause of failure was the American pullout from the system, the foundations were being weakened long before the event. The commencement exercise change was the monetary interdependence which countries faced with respect to each other and the convertibility of the Japanese Yean and the Western European countries. This made it possible for banks and monetary organizations to take map in large financial transactions further adding to the financial interdependence of various countries (Cooper & Sneddon, 2001).Banks are able to make huge transfers of capital from one country to another for investment and lending purposes but that money can also be used for currency speculation. In the Bretton Woods system, exchange rates were much or less fixed and countries were hesitant in revaluing their currencies (Bird, 1994). Speculators c ould therefore convert large sums of money from a soft to a hard currency hoping to make value when the