Spot Forex: The Bretton Woods Accord
The Bretton Woods Accord
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| The Bretton Woods Accord was established to restore global economic stability. |
Near the end of WWII, the Bretton Woods Accord became the first major modern transformation of the forex market. The United States, Great Britain and France met at the United Nations Monetary and Financial Conference in Bretton Woods, N.H., to design a new global economic direction. At that time, much of Europe was in the midst of war. As the only country untouched by it, the U.S. seemed a logical choice to hold the conference.
The Bretton Woods Accord established a more stable environment, leading to many other global economies restoring themselves and their currencies. In fact, the Accord created the International Monetary Fund (IMF) and the pegging of currencies in hopes of stabilising the global economic situation.
Before World War II, most currencies were compared to the British pound. During the war, however, the Nazi campaign against Britain included a major counterfeiting effort that devalued British currency. WWII launched the U.S. dollar from a failed currency after the stock market crash of 1929 to a standard that most other international currencies would soon become compared and valued.
Major currencies now were pegged to the U.S. dollar, fluctuating by one percent on either side of the set standard. When a currency's exchange rate would approach the limit on either side of this standard, the respective central bank would intervene and bring the exchange rate back into the accepted range. At the same time, the U.S. dollar was pegged to gold at a price of USD 35 per ounce, further stabilising other currencies and the world forex situation.
The Bretton Woods Accord, which lasted until 1971, ultimately failed because of its insistence on using a set standard to fix a currency against a smaller market, such as gold. However, it did accomplish what its charter set out to do, which was to re-establish economic stability in Europe and Japan.
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