The Bretton Woods System

Great Depression which occurred after the collapse of Wall Street in U.S. made every country suffered because of the decline in the economy, thus poor people increase and the society become broke down. This bad situation encouraged United Nations (UN) to do a thing that could bring back a welfare society. So, a conference in Bretton Woods was held in 1944 after World War II. U.S and her 44 alliances, Britain and Argentina were agreed to establish an international cooperation that could ensure a peaceful welfare world. They will provide global institutions which will regulate the free flow of the capital and to stabilize the economic in the world.

There are 3 institutions was formed. Firstly, International Monetary Fund (IMF) who will help a country to pay his debt by giving loans. IMF also regulates the monetary system. In 1971, U.S dollar became a based in the international monetary system, whereby 35 U.S. dollar equal with one ounce of gold. Although IMF was made to regulate the monetary system but each country can made their policies by themselves as long as they restrict the short-term movement of capital across borders.

Secondly, General Agreement on Tariffs and Trade (GATT) a forum which is known as World Trade Organization (WTO) nowadays who will manage the free trade among countries. GATT reduce tariff and they also promised not to treat differently among stated which is also signed the agreement. This forum discussed about the bilateral agreement and the decrement of trade barriers. GATT success made the increment of export and the production of export goods.

Lastly, International Bank for Reconstruction and Development (IBRD) or World Bank which is better known now who will help the economy reconstruction and the establishment of the infrastructure in a country. It would made foreign investor become interest to invest in other country. A foreign direct investment which is done by built factories in foreign country especially in the developing countries. Rather than trade they prefer to invest because it enlarge their market and more profitable. Unfortunately, the developed country industries which have better technology and management close local company indirectly because they could produce a cheaper and better quality product and the local market will prefer the products from the foreign firms.

Those three institutions had made a better economic in the world. But, this system also could make a threat to national security because the over-dependently could occur and made a country easier to be attacked by others. These institutions also were accused because of their regulations only fulfill the minority developed countries which is profitable for them. So, I think that a country should try to build up their economy not just borrow the money from IMF to pay his debts. But, use that money to develop his infrastructure and help protect their local company, so it could increase national income and pay the debts. It’s better than to rob Peter to pay Paul.

Source: Frieden, J. A. (2006). The Bretton Woods System in Action. In Global  Capitalism: Its Fall and Rise in the Twentieth Century (pp. 278-300). New York: W. W. Norton & Company.

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