The Bretton Woods Agreement refers to an international monetary system established in 1944

during a conference held in Bretton Woods, New Hampshire, USA. The agreement laid the
foundation for the post-World War II global financial order and aimed to promote stability and
facilitate international trade and economic cooperation. Here are the key points about the Bretton
Woods Agreement:

1. Purpose: The primary goal of the agreement was to create a stable monetary system that would
prevent competitive currency devaluations and promote economic growth after the devastation of
the war.

2. Institutions: The Bretton Woods Agreement led to the establishment of two key international
institutions: the International Monetary Fund (IMF) and the World Bank. The IMF was created to
ensure stability in the international monetary system by providing loans and financial assistance to
member countries facing balance-of-payment difficulties. The World Bank aimed to promote
economic development by providing financial support for infrastructure projects and
reconstruction efforts.

3. Fixed Exchange Rates: The agreement introduced a system of fixed exchange rates, with the
U.S. dollar serving as the central currency. Each member country would tie its currency to the
U.S. dollar, and the dollar, in turn, would be linked to gold at a fixed price. This system aimed to
provide stability and predictability in international trade and investment.

4. Convertibility: Member countries were required to maintain the convertibility of their

currencies into U.S. dollars at the fixed exchange rate. This facilitated the smooth flow of
international transactions and trade.

5. Adjustments and Stabilization: In case a member country's currency was under pressure, the
IMF would provide financial assistance and guidance to help stabilize the currency and restore its
external balance.

6. Collapse: The Bretton Woods system began to face challenges in the 1960s due to economic
imbalances, increased capital flows, and the U.S. experiencing difficulties maintaining the fixed
gold convertibility of the dollar. In 1971, the United States unilaterally ended the convertibility of
the dollar to gold, leading to the collapse of the Bretton Woods system.

Despite its eventual demise, the Bretton Woods Agreement played a crucial role in shaping the
global monetary system and laying the groundwork for future international financial institutions. It
emphasized the importance of stable exchange rates, cooperation among nations, and the need for
financial assistance mechanisms to address economic challenges faced by member countries.