The Role of Bretton Woods System in the Changes of International Monetary System

The international monetary system has shifted from the gold standard to the credit standard over the past 200 years，while the Bretton Woods system is a key link between the two extremes. Understanding the rise and fall of the Bretton Woods system will help understand the changes and challenges faced by the contemporary international monetary system. The death without a sickness of the Ad Hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Matters after 2008 global financial crisis，not only revealed the powerlessness of economists，but also the irreparable huge gap between theory and reality.

The Bretton Woods system is a key link between the two extremes

As the increase in productivity and trade volume brought by the industrial revolution undoubtedly broke through the constraints of traditional barter trade，international currencies emerged along with international settlements. As Marx has pointed out that once the currency crosses the country，it should take off the coat of race and restore as commodity currency as gold. The continuous inflation in the history of various countries has repeatedly proved that it is necessary to restrict currency issuance. As a logical choice，the gold standard became the original form of the international monetary system. From this perspective，the international gold standard coming forth at the end of the 19th century was what everyone expected.

However，the gold standard born in wrong times. In the era of continuous promotion of industrial revolution，rapid expansion of commodity relations and extraordinary development of bank credit，the media of transactions and settlements was constrained to limited precious metal. Production of precious metal may be occasionally synchronous with economic growth and development of economic relations，while the synchronism may last long. Once this happens，the gold standard will weaken due to the lack of material basis for normal social and economic operation. Indeed，the gold standard is the only reliable trusted and acknowledged currency form in the free competition era，however this only shows the conflict between the free competitive commodity economy and currency instinct in history，not the reasonableness and necessity of it.

The gold standard requires that various countries comply to the uniform rules，such as free gold policy and adequate gold reserve for currency issuance; however，as other international systems，the gold standard also faces spontaneity of executing rules and looseness of supervision. Entering the era of monopoly capitalism，the loose and spontaneous rules of the gold standard became weaker and weaker for governments. Before the World War I，the closed gold policy of various countries further weakened the gold foundation of the money supply; after World War I，the gold exchange standard and the gold bullion standard temporarily implemented by some major capitalist countries failed to fundamentally solve the dilemma of the gold standard. Therefore，the international gold standard had collapsed before World War II actually. Exchange rate wars and trade wars between countries brought great harm to global trade and economy.

The Bretton Woods system is a new international monetary system established in the form of an agreement after World War II to remedy the shortcomings of the gold standard. On the one hand，gold is the ultimate foundation of the entire international monetary system，and the US dollar is the main international reserve currency，establishing the gold-dollar standard. Currencies of various countries do not set gold content，but only set exchange rates to US dollar and linked to gold indirectly. In this sense，the Bretton Woods system is gold exchange standard and US dollar has the same status as gold. Fixed exchange rate system is implemented，which is beneficial to the economic development. On the other hand，it is an institutional arrangement that integrates the credit standard and international currency cooperation. In view of historical experience，countries generally believed that the Bretton Woods system gave them more freedom than the gold standard，facilitating the implementation of their own macro policies and realizing balanced domestic growth. For the sake of the internal and external equilibrium，participating countries have agreed on several measures dealing with disequilibrium of balance of payments. In case of fundamental disequilibrium，the exchange rate could be adjusted upon the approval of IMF.

Obviously，with the disadvantages of the gold standard exposed thoroughly，the Bretton Woods system forms the key link between the gold standard and the credit standard.

The two core changes of the Bretton Woods system to the gold standard

Replace unilateral action with international cooperation and negotiation

Different from the spontaneous and loose maintaining of the uniform rules under the gold standard，signing the Bretton Woods Agreement means that each member country is committed to abiding by the relevant rules legally，and the absolute authority of various governments to make decisions based only on domestic economic conditions is replaced with international cooperation in the framework of the Bretton Woods system. In fact，the International Monetary Fund (IMF) is established to provide a permanent institution and venue for the negotiation and collaboration on international currency issues and strengthen international currency cooperation.

In this sense，a major change of the evolution of the international monetary system under the Bretton Woods system is that the participating countries sacrifice some of their sovereignty，especially sovereignty in exchange rate determination，in exchange for a stable exchange rate and promotion of international trade as a member of the IMF. Therefore，despite widespread criticisms of its coordination performance，it is precisely the IMF that provides an important place for exchange and communication of the international financial policies and even the macroeconomic policies of various countries. The IMF has no de facto coercive force except the conditionality of loans，and all countries rarely resist it in spite of some complaints. As a result，the awareness and consensus of macro-monitoring and international coordination has been strengthened. Even 50 years after the collapse of the Bretton Woods system，the IMF remains the most valuable legacy as a key platform for monitoring and coordination of various countries' macro economy and international finance.

Break the shackles of the gold standard and introduce the credit standard

Instead of resting on the gold foundation of the international monetary system，the Bretton Woods system incorporates the credit of the US dollar，providing a kind of flexibility fo