The Bretton Woods countries decided not to give the IMF the power of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold, which will be held by the IMF. Each member of the Bretton Woods system then had the right to borrow what it needed as part of its contributions. The IMF was also responsible for the implementation of the Bretton Woods agreement. The Bretton Woods Agreement was created in 1944 at a conference of all allied nations of World War II. It took place in Bretton Woods, New Hampshire. Despite its name, the World Bank was not (and is) not the central bank of the world. At the time of the Bretton Woods Agreement, the World Bank was created to lend to European countries devastated by the Second World War. The World Bank`s focus has changed in providing lending to economic development projects in emerging countries.
The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations to oversee the new system. The Bretton Woods Agreement of 1944 established a new global monetary system. It replaced the gold standard with the US dollar as the world currency. In this way, it established America as a dominant power in the global economy. After the agreement was signed, America was the only country capable of printing dollars. As part of the agreement, countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar. If a country`s monetary value became too low against the dollar, the bank bought its currency on the foreign exchange markets. When the dollar was no longer tied to the price of gold, it became the monetary norm, with other currencies tying their currencies to it. Why dollars? The United States held three-quarters of the world`s gold supply. No other currency had enough gold to insure it as a replacement. The value of the dollar was 1/35 of an ounce of gold. Bretton Woods has allowed the world to slowly move from a gold standard to a US dollar standard.
The Bretton Woods system could not have worked without the IMF. They would need some kind of global central bank from which they could borrow money if they had to adjust the value of their currency and not dispose of the funds themselves. Otherwise, they would only invest in trade barriers or raise interest rates. The IMF`s objective was to monitor exchange rates and identify countries in need of global monetary support. The World Bank, originally known as the International Bank for Reconstruction and Development, was established to manage funds for assistance to countries that had been physically and financially devastated by the Second World War. In the twenty-first century, the IMF has 189 member countries and continues to support global monetary cooperation. .