A case study of Britain under the Bretton Woods regime of fixed exchange rates

The purpose of this thesis is to assess postwar recovery and economic stability for Britain under the Bretton Woods system of fixed exchange rates. The international economic system of the modern era has been defined by exchange rate regimes. The period from 1870-1914 was based on the gold standard while the interwar period from 1918-1939 was a reprised gold standard followed by a disheveled floating exchange system. In the aftermath of WWII, the Bretton Woods system of fixed exchange rates began and was followed up in 1973 by the floating system that dominates our contemporary era. Through a careful historical and economic analysis that details a full chronology of the system and gives an analytical assessment of Britain’s particular situation, I answer whether the Bretton Woods system was right for Britain in the aftermath of WWII. Through a detailed economic history I lay the foundation for addressing the fixed rate dilemma for Britain following World War II. Unlike many of the countries in Europe which had to rebuild infrastructure and the U.S. which became an economic giant due in part to its rise of the dollar as the new international vehicle currency, Great Britain faced great economic policy changes and challenges during this tumultuous time. They had entered the war economically strong with a vast empire and ended the war victors in combat but economic losers. Britain became a debt filled nation unable to maintain the empire they claimed sovereignty over or the commonwealth under the pound sterling influence. The fixed exchange rate system took monetary control away from Britain and placed it in the hands of the governing system known as the IMF. From 1945 until the Bretton Woods regime failed in 1973, Britain dismantled its empire, shifted its trade patterns and integrated with Europe in response to impositions of fixed rates. This thesis will look specifically at the effects of the Bretton Woods system of fixed exchange rates and especially the effects on Britain’s economic policy. I will plunge into the economics behind fixed exchange rates and make a comparative analysis to the effects of floating rates within a historical context. Through this analysis, I will put together an economic history of the Bretton Woods Regime and the implications for Britain to stabilize its external and internal balances while facing problems with limited reserves, devaluation and currency convertibility. Finally the thesis will assess Britain’s experience in Bretton Woods through the perceptions of time and how it is judged in hindsight