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The contract in Bretton Woods
In 1967 The Chicago bank has refused to give out the loan in pounds sterling to the professor of college by name Milton Freedman because he has intended to use money for sale of the British currency. Freedman has felt that the sterling has been overrated against dollar, and he has wished to sell currency, then later to buy it back after the currency will decrease to pay off with bank and, thus, to get fast profit. Bank refusal to allow a loan has been caused by the contract in Bretton Woods, which has been signed twenty years earlier and has fixed exchange rates of the different countries against dollar, and dollar against gold at the rate of 35$ for ounce.
The contract in Bretton Woods has been signed in 1944 for the purpose of maintenance of financial stability in the world, limiting movements of money through borders of the states and currency gamble. Before this contract, in 1876 and before the First World War «the gold equivalent» has dominated in the international economic system. During «a gold equivalent» currencies have been adhered to the gold price, thereby, providing stability. It has eradicated the old practice used by governors, any devaluation of currency and an inflation call.
But «the gold equivalent» has not been without lacks. As soon as the economy of any country has amplified, it has caused import increase from abroad, its gold reserves have demanded for maintenance its currency has been not reduced yet. As a result, delivery of money has been compressed, interest rates have raised and economic activity has been slowed down up to recession. Finally, the prices of the goods have reached a minimum, have become attractive to other countries that have led to purchasing boom which has filled economy of the given country with gold, it has increased delivery of money in economy, has reduced interest rates that have caused economy revival. Such developments and recessions have been prevailed during an epoch of “a gold equivalent» prior to the beginning of the First World War which has broken trading streams and a free gold flow.
After the both World Wars the contract in Bretton Woods has been signed, where countries-participants have agreed to use all efforts for deduction of courses of the currencies in narrow borders against dollar and accordingly gold. It was forbidden to the countries to devaluate the currencies for the purpose of reception of trading advantage, and has been allowed only devaluation less than 10 %. In 50-s’ the increasing volume of the international trade caused by post-war building, has led to massive movement of the capital. It has destabilized the exchange rates of currencies established in Bretton Woods.
The contract has been definitively canceled in 1971 and the American dollar has ceased to be converted in gold. To 1973 currencies of the basic industrially-developed countries have begun to move more freely, being supervised basically by the level of demand and offers in the international currency market. The prices has been changed daily, volumes of the auctions, speed and price variability constantly have increased in 70-s’, encouraging creation of new financial tools, market and trading liberalization.
In 80-s’ with the advent of computers and new technologies the international movement of the capital has increased, erasing borders between the Asian, European and American time zones. The volume of the auctions in the international currency market has increased about approximately 70 billion $ a day (in 80-s’) and two decades later to more than 1.5 billion $ a day.
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