The financial system established at Bretton Woods

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* THE CONFERENCE - WHAT DID IT DO?

-- With World War Two drawing to a close and Japan and Europe in ruins, the world's economic elite gathered to build a framework for economic cooperation that would avoid a repetition of the cycle of competitive devaluations that had contributed to the Great Depression of the 1930s.

-- The Conference established the International Monetary Fund and the World Bank, set the gold standard at $35 an ounce and chose the dollar as the cornerstone of world currency exchange.

* SINCE THEN:

-- Bretton Woods was blown apart by the strains produced by the war in Vietnam and effectively suspended by President Richard Nixon in 1971. This meant the U.S. would no longer honor the agreement which made the U.S. dollar the world's reserve currency, and allowed other countries to convert their US-dollar holdings into gold.

-- In 1994, calls for more stability resurfaced after the dollar tumbled to a series of post-World War Two lows against the Japanese yen and central bankers and politicians worried about the onslaught of speculators in foreign exchange markets.

* NEW DEVELOPMENTS:

-- U.S. President George W. Bush announces he will host the first in a proposed series of global summits on the financial crisis.

-- French President Nicolas Sarkozy calls for a revamp of the international financial architecture established after World War Two at the 1944 Bretton Woods conference.

-- IMF announces it has appointed an outside law firm to investigate whether IMF chief, Dominique Strauss-Kahn, possibly abused his power in an affair with a subordinate who has since left the institution. The lawyer for the senior economist, Piroska Nagy, has denied she was given preferential treatment before leaving the IMF in August.

-- European Central Bank President Jean-Claude Trichet says he is convinced the investigation will show that Strauss-Kahn did not abuse his power.

* THE ROLE OF THE WORLD BANK AND IMF:

-- THE WORLD BANK - The World Bank officially began operations in June 1946. Its first loans were geared toward the post-war reconstruction of Western Europe. Beginning in the mid-1950s it plays a major role in financing investments in infrastructure projects in developing countries.

-- IMF - Financial operations began in 1946. Its aims include surveillance of economic and financial developments, lending to countries with balance of payments difficulties, supporting policies aimed at correcting the underlying problems, poverty reduction and technical assistance.

"Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention," the IMF's Web site says.

Editor: Bruce Meng

SOURCE:paperage.com