The August shock was followed by U.S.-led efforts to reform the international monetary system. In the autumn of 1971, a series of multilateral and bilateral negotiations took place between the group of ten countries to reorganize the exchange rate regime. The collapse of the Bretton Woods system between 1971 and 1973 led industrialized countries to adopt a managed variable exchange rate system in general, which is still here. But this result (at least at that time) was not inevitable. As Despres et al. (1966) argued, unlike Triffin, the persistent U.S. balance-of-payments deficit was not a real problem. The rest of the world voluntarily held dollars because of their precious flow of services – the deficit was determined by demand. According to them, the Bretton Woods system could have continued indefinitely. Of course, this was not the case, but although the system of equations ended in 1973, the dollar-free standard is still with us, as McKinnon (1969, 1988, 2014) has long said.
In 1944, in Bretton Woods, following the collective conventional wisdom of the time,[15] representatives of all leading allied nations collectively supported a regulated fixed exchange rate system, indirectly disciplined by a gold-related dollar[16] – a system based on a regulated market economy, with strict controls on money values. International speculative financing flows have been held back by the passage and limitation by central banks. This meant that international investment flows were invested in foreign direct investment (FDI) – that is, the construction of factories abroad instead of international currency manipulations or bond markets. Although national experts have, to some extent, disagreed on the specific implementation of this system, everyone agreed on the need for strict controls. After the Second World War, it was clear that the world needed a new financial system. The gold standard was considered too rigid, but at the same time, economists feared that countries would devalue their currencies to boost exports. That is why 44 countries sent delegates to a conference held on July 1, 1944 in Bretton Woods, New Hampshire. The United States, which held two-thirds of the world`s gold reserves after the war, was apparently the most influential player, and eventually all currencies were linked to the dollar and the dollar was tied to gold. But a major concern has arisen when a country is going through an economic crisis, how can it get out of this crisis without devaluing its currency? Two institutions have been created to address this problem. In 1971, the United States suffered from massive stagflation – a combination of inflation and recession that causes unemployment and weak economic growth.