An Agenda for a New Bretton Woods

The 1944 Bretton Woods Agreement established the International Monetary Fund and the World Bank, and laid down for the first time an agreed framework of rules for international finance. The aim was to avoid a recurrence of the devastating economic crises and mass unemployment of the inter-war years. Over the years, however, the accelerating growth of financial markets and the abandonment of fixed exchange rates has led to major changes in the international financial scene. Short-term capital movements and fluctuating exchange rates have become a major source of instability, making it increasingly difficult for companies involved in international trade and investment to plan ahead, as national currencies alternate between being overvalued or under-valued — as British industry has found to its cost. More recently, with growing financial liberalization of capital markets, developing and transition economies have been hit by a series of crises, first in Asia, then in Russia and Brazil, which have culminated in financial failure and massive rises in unemployment, with millions of people in countries such as Indonesia slipping back into dire poverty.