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Case Study Bretton Woods
Case Study Bretton Woods
to other currencies
hence other currencies needed their own revaluation with respect to dollar or the dollar could be devalued with
respect to gold by raising price of gold. this devaluation would only reduce the flow of gold foreign central
banks. another option was to change monetary policy and reduce the excess supply of dollars on the Forex. It
would increase taxes etc. to finance deficit rather than increasing money supply. Even after the revaluations of
some countries, supply of dollar in forex was not controlled. So, president Nixon announced a readjustment
plan having three main points i.e. 10% surcharge on all imports, dollars would not be exchanged with gold and
wage and price management to control inflation. 10% tax was to pressurize the countries to revalue their
currency. Wage and price control meant that foreign exporters were not allowed to transfer the tax to customers.
These three measures resulted in 8% revaluation of other currencies. Dollar devalued and prices of gold were
raised. By March 1973 large dollar outflow suspended the forex resulting in many countries curries were
floating, hence the system was dead. It was hoped that once stability was achieved fixed system would be
restored but it did not actually came to practice again since then.