THE financial crises of US President Richard Nixon led to the end of the Bretton Woods system. During these years, the foreign dollar exceeded the value of U.S. gold reserves at Fort Knox and elsewhere. This undermined the premise of the agreement, namely that the United States could still support its dollars with its gold equivalent. The IMF should provide loan advances to countries with balance-of-payments deficits. Short-term balance-of-payments difficulties would be overcome by IMF loans, which would facilitate exchange rate stability. This flexibility meant that a Member State did not have to cause depression to bring its national income down to such a low level that its imports would eventually fall within its capabilities. This should avoid the need for countries to resort to conventional medicine, to embark on dramatic unemployment in the face of chronic balance-of-payments deficits. Before the Second World War, European nations – especially Britain – often used it. Although they were established in Bretton Woods, these institutions are all based in Washington, DC.
Orthodoxy, which dominated its relations with developing countries, became a Washington consensus and imposed a dogmatic reading of neoliberal policy under its terms. It started in the early 1980s and started until the middle of that decade. These controversial policies have had mixed effects that are discussed below, but over the next quarter century they have become and will remain a major feature of international development, although they have undergone some changes in emphasis. The agreement also facilitated the creation of very important financial structures: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now known as the World Bank. The Bretton Woods rules, set out in the articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a fixed exchange rate system. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to make free trade.