What is bretton woods agreement?
This conference was result of collaboration between the United States and Britain , which has several feature that forming three institutional
The three world financial institutions namely the International Monetary Fund, the World Bank and the World Trade Organization
These Three financial formed formed in order to resolve the battle between domestic autonomy and international stability, but the foundations in the system of autonomy of national policies, fixed exchange rates, and the ability to change currencies from each other were contradictory.
At the end of the 19th century, the international trade system was based on the economic system of mercantilism .
The mercantilist economic goal is to prosper the country by including as much income as possible into the state treasury.
The main actor in the economic system according to mercantilists is a country where mercantilism is very popular for the government that is fostering the power of the state because its aim is to focus more on achieving the country’s national interests to the fullest.
But this trading system was destroyed along with the outbreak of world war affected countries to become commodity protectionist
From commodities or goods from outside and the unstable currency system during the war.
With the background of the spirit of liberalism, the idea was supported by the United States and Britain
which aimed to increase economic transactions based on conditions of equal access to markets. And the spirit of liberalism led to a conference at Bretton Woods in 1944.
Bretton Woods Conference Goal
There are two main objectives of the Bretton Woods conference, namely:
1.Encourage reduction of tariffs and other obstacles in international trade and
2.Creating a global economic framework to minimize economic conflicts that occur between countries, one part of which is to prevent World War II.
World Financial Institutions Born from the Bretton Woods Conference:
The International Monetary Fund was established in 1945, with the signing of the articles in the agreement which were the result of the 1944 Bretton Woods Conference by 29 countries, and began operating in 1947. as stated in Article 1 of the Original Agreement Agreement are:
*First, increasing international monetary cooperation towards a permanent institution that provides consultation and collaboration services for international monetary issues;
*Second, facilitating balanced expansion and growth efforts from international trade and encouraging an increase in the degree of labour and real sector income and encouraging productive resources as the main object of economic policy for each member;
*Third, improving exchange rate stability with the aim of regulating exchange rates among members, as well as preventing competition from depreciating the exchange rate;
*Fourth, assist to estabilishing multilateral payment system with goal to facilitate transaction between member country, remove barrier on foreign exchange
*Fifth, they have the opportunity to correct problems in the balance of payments without using measures that exacerbate national and international welfare.
*Sixth, the IMF aims to accelerate the resolution of the crisis
The World Bank is a financial institution originally named International Bank for Reconstruction and Development which was established together with the International Monetary Fund institution at the Bretton Woods Conference in 1944. The objectives of the establishment of the World Bank are:
*First, helping member countries in terms of development and reconstruction.
*Second, increasing private invesment and guaranties borrowing from private investment
*Third, provide (under certain circumstances) finance intended for productive purposes;
*Fourth, improving the balance of long-term growth in international trade and maintaining a balance of payments balance;
*Fifth, regulate basic policies in order to give priority to projects that have more value of benefits and value of interests;
*Sixth, influence world investment
GENERAL AGREEMENTS ON TARIFFS AND TRADE
The General Agreement on Tariffs and Trade is an institution produced through the Bretton Woods Conference but never entered into force and operated under the auspices of the Protocol on Provision of Applications signed by 23 countries in 1947
Bretton woods 3 main principles, namely:
*Non-discrimination, where trade restrictions must not be made by privileging one partner and ignoring another partner.
*Elimination of trade barriers, if an industry requires protection, it is not permissible to use quantitative barriers, such as quotas and other non-tariff barriers.
*Consultation among member countries to resolve disputes that may arise.
The United States through the agreement has succeeded in introducing the use of US dollars on world financial transaction