The United States from the World War II as the Strongest Economy in Research Paper

The United States from the World War II as the Strongest Economy in the World - Research Paper Example Each of the countries which signed their allegiance to the Bretton Woods indicates its recognition of four important factors. This uniformity becomes the cornerstone and the main factor which holds the international economy together. First, all the nations involved recognize and agree that â€Å"the interwar period had conclusively demonstrated the disadvantages of unrestrained flexibility of exchange rates† (Cohen 4). It can be recalled that the Great Depression in the 1930s has become a grim reminder of how floating exchange rates discourages trade and investment while increasing the risk of destabilization and competitive depreciation. On the other hand, architects of the Bretton Woods are also reluctant in adopting a permanently fixed exchange rate like the 19th-century gold standard. Thus, avoiding both maxims, delegates agree on a â€Å"pegged rate† or â€Å"adjustable peg† currency regime or a par value system (Cohen 5). Thus, each country is obligated to choose a par value in their national currency and intervene in order to maintain the exchange rate within 1% above or below the preset rate. Secondly, all nations hold that â€Å"if exchange rates were not to float freely, states would also require assurance of an adequate supply of monetary reserves (Cohen 6).† The financial hegemony held by the United States during the period significantly affected the final decision: â€Å"a system of subscriptions and quotas embedded in the IMF, which itself was to be no more than a fixed pool of national currencies and gold subscribed by each country†.