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The Bretton Woods System definitions

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  • Bretton Woods System
    A post-WWII arrangement where currencies were fixed to the US dollar, which was convertible to gold by central banks only.
  • Fixed Exchange Rate
    A regime where a currency's value is tied to another currency or commodity, preventing market-driven fluctuations.
  • Gold Standard
    A monetary system where currency value is directly linked to a specific amount of gold, allowing redemption for gold.
  • Central Bank
    A national authority responsible for managing currency, reserves, and monetary policy, including gold and dollar holdings.
  • Dollar Reserves
    Holdings of US currency by foreign monetary authorities, used to maintain exchange rate stability under the system.
  • International Monetary Fund
    An institution created to provide financial support to countries facing reserve shortages, helping maintain currency pegs.
  • Surplus
    A situation where the supply of a currency exceeds demand at the fixed exchange rate, often requiring adjustment.
  • Shortage
    A condition where demand for a currency surpasses supply at the fixed rate, leading to pressure for revaluation.
  • Overvaluation
    A state where a currency's fixed rate is set above its market equilibrium, making exports less competitive.
  • Undervaluation
    A scenario where a currency's fixed rate is below its market equilibrium, boosting exports but risking shortages.
  • Revaluation
    An official increase in a currency's fixed value relative to others, often resisted due to export concerns.
  • Inflation
    A general rise in prices, which can result from excessive money creation when fixed rates are not adjusted.
  • Managed Float System
    A post-1973 regime where exchange rates are mostly market-determined, but governments may intervene occasionally.
  • Equilibrium Exchange Rate
    The rate at which currency supply equals demand, absent government intervention or fixed pegs.
  • Currency Peg
    A policy of fixing a currency's value to another currency or commodity, central to the Bretton Woods arrangement.