(1) The Bretton Woods system and institutions setup after World War II (2) The U.S. dollar as a reserve currency (3) Most of the international trades are done in U.S. Dollar and commodities are quoted...

Bretton Woods System commonly refers to the international monetary regime that existed from
the end of World War II until the early 1970s. It took its name from 1944 conference that gave
irth to “World Bank” and “International Monetary fund”. The genesis of meeting came from the
determination of UK Prime Minister Winston Churchill and US president Franklin D Roosevelt
in order to promote economic cooperation (in the post war period) and to avoid economic
conflict between different countries which according to them was one of the causes of war. It
was first historic example of a fully negotiated cu
ency management intended to govern
cu
ency relations among member countries. The delegates (in the conference) focused on two
key issues; how to pay for rebuilding the war-damaged economies of Europe and how to create a
stable system of exchange rates. And they thereby created two international organizations to deal
with these problems: 1) The IMF (international monetary fund) was established to enforce a set
of fixed exchange rates that were linked to dollar. Countries having difficulty in balance of
payment account were able to receive help from IMF to avoid devaluation. Moreover, it had the
power to sanction changes in exchange rates whenever necessary. 2) The other institution was
“World Bank”. The World Bank was set up to provide long-term loans required for development
activities, for facilitating investment in productive purposes, especially in economies that were
avaged/destroyed by war. In simple words, the Bretton Woods System was based on stable and
adjustable exchange rates. Under this system, price of each cu
ency was fixed and linked to
dollar. However, the exchange rates were not permanently fixed, occasional devaluation of
individual cu
encies were allowed to co
ect any disequili
ium in balance of payment account.
However, continued pressure on dollar and growing trade deficit of United States
in the 1960s prompted President Nixon to unilaterally go off the gold standard and devalue the
cu
ency. And this resulted in fall of Bretton Woods System by the early 1970s.
The US dollar became the world’s reserve cu
ency about 69 year ago. It was
the Bretton Woods Conference held in 1944 that resulted in making US dollar a reserve cu
ency
worldwide. In this conference, the member countries agreed to build a payment system based on
the US dollar and a system in which dollar was pegged with gold. The real turnaround for US
dollar being a World’s reserve cu
ency came in early 1970s, when President Nixon abandoned
the gold standard and devalued the dollar significantly. This
ought the Bretton Woods System
to an end and made the dollar a fiat cu
ency. The US dollar today is the most widely held
cu
ency in the Allocated Reserve today. In last decade, about two thirds of the total foreign
exchange reserves have been US dollars. For this reason, the US dollar has been given...