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Bretton Woods Agreement

Definition

The Bretton Woods Agreement was an arrangement negotiated in 1944 among the world’s leading economies to regulate international monetary systems after World War II. It established fixed exchange rates with the U.S dollar tied to gold.

Analogy

Imagine if you're playing Monopoly with friends from different countries where each country has its own version of Monopoly money. To make sure everyone can play fairly together without worrying about fluctuating currency values or unfair trades, you decide on set exchange rates between your different versions of Monopoly money - that's similar to what happened at Bretton Woods!

Related terms

International Monetary Fund (IMF): An international organization created for the purpose of standardizing global financial relations and exchange rates; think of it as a global bank that helps keep economies stable.

Gold Standard: A monetary system where a country's currency or paper money has a value directly linked to gold; it's like having a golden ticket that can be exchanged for actual gold.

Exchange Rate: The value of one country’s currency in relation to another's; think of it as the price tag on your money when you want to buy another country's currency.