Spot Forex: The Bretton Woods Accord
The Bretton Woods Accord
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| The Bretton Woods Accord was established to restore global economic stability. |
The Bretton Woods Accord, which is the first major modern transformation of the forex market, occurred near the end of World War II. The United States, Great Britain and France met at the United Nations Monetary and Financial Conference in Bretton Woods, N.H., to design a new global economic direction. At the time, most of Europe was in the midst of war. As the only country untouched by it, the U.S. was a logical choice to hold the conference.
Until WWII, the British pound was the major currency to which most currencies were compared, but that changed when the Nazi campaign against Britain included a major counterfeiting effort against British currency. In fact, WWII vaulted the U.S. dollar, from a failed currency after the stock market crash of 1929 to a benchmark currency, by which most other international currencies would soon become compared and valued. The Bretton Woods Accord established a stable environment, leading to an onslaught of other global economies restoring themselves and their currencies. In fact, the Accord created the International Monetary Fund (IMF) and the pegging of currencies in hopes of stabilising the global economic situation.
Major currencies were now pegged to the U.S. dollar, fluctuating by one percent on either side of the set standard. When a currency's exchange rate would approach the limit on either side of this standard, the respective central bank would intervene and bring the exchange rate back into the accepted range. At the same time, the U.S. dollar was pegged to gold at a price of $35 per ounce, further stabilising other currencies and the world forex situation.
The Bretton Woods Accord lasted until 1971. Ultimately, it failed because of its insistence on using a set standard to fix a currency against a smaller market, such as gold. However, it did accomplish what its charter set out to do, which was to re-establish economic stability in Europe and Japan.
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