Factors That Have Led to the Collapse of the Bretton Woods System

Abstract

The Bretton Woods system was abandoned by the U.S. government in 1971. In order to learn to avoid the structural flaws that led to the collapse and ensure a more stable economic condition in the future, this article aims to research the cause of the collapse. It elaborates on the two main causes of the Bretton Woods system: structural ones, such as the incompatible role of the USD and the conflicting sovereign goals, and the operational ones, such as the reluctance of other countries to follow the exchange rate rules. It then displays viewpoints from these two causes, and analyses them, that is, strengthens or undermines them, with facts and reasoning. Finally, it reaches the conclusion that the Bretton Woods system broke down in 1971 due to structural factors instead of operational ones and gives some brief lessons from the failure.