Causes of the Bretton Woods System Crisis

Instability and Contradictions of the US Economy

The beginning of the currency crisis in 1967 coincided with a slowdown in economic growth. The increase in inflation negatively affected world prices
and the competitiveness of firms, encouraging speculative movements of "hot" money. Different inflation rates in different countries affected the
dynamics of exchange rates, and the decrease in the purchasing power of money created conditions for "exchange rate distortions."

Speculative Operations

In the 1970s, speculative operations, accelerating the spontaneous movement of hot money between countries, exacerbated the currency crisis. The
surplus of dollars in the form of an avalanche of hot money periodically fell on one country, then on another, causing currency shocks and flight from
one currency to another.

Instability of National Balances of Payments

Chronic deficits in some countries (especially the USA and Great Britain) and positive balances in others (Germany and Japan) increased sharp
fluctuations in exchange rates.

Inconsistency of the Principles of the Bretton Woods System

The monetary system based on the use of national currencies contradicted the internationalization of the world economy. This contradiction increased
as the economic positions of the USA and Great Britain weakened, which paid off the deficit of their balances of payments by issuing national currencies,
using their status as reserve currencies. This was especially contrary to the interests of developing countries.

The Role of Transnational Corporations (TNCs) in the Currency Sphere

TNCs have at their disposal gigantic short-term assets in various currencies, which can significantly exceed the foreign exchange reserves of the central
banks of the countries where they operate. These amounts escape national control and, in pursuit of profits, participate in currency speculation, giving
them enormous scope.

Triffin's Paradox

On the one hand, the expanding needs for international trade required an ever-increasing amount of money supply, and on the other hand, this money
supply had to be provided with gold and foreign exchange reserves. These contradictions were clearly formulated as a paradox, or Triffin's dilemma.

1. Emission of Key Currency: The emission of a key currency must necessarily correlate with a change in the country's gold reserves. Excessive
   emission, not provided by the state's gold reserves, can undermine the convertibility of this currency into gold and, after a certain period of time,
   will inevitably cause a crisis of confidence in it.

2. Volume of Emission: The key currency must be emitted in volumes sufficient to meet the needs of international trade in the money supply to
   ensure the growing number of international trade transactions. Thus, the emission of such currency should be ensured in the necessary volumes,
   without paying attention to the real gold reserves of the country.

Thus, the stated internal contradiction will sooner or later lead to the need to revise the foundations of the existing currency system. The structural
principles established in 1944, by the end of the 1960s, ceased to correspond to the conditions of production, world trade, and the changed balance
of power in the world economy.

Additional Aspects

1. Growth of the Role of Other Currencies: The formation of new financial centers, such as Western Europe and Japan, led to the gradual use of
   their national currencies as reserve currencies, which weakened the dominant position of the US dollar.

2. International Liquidity: Gold production was insufficient compared to the growth in international trade, which created problems with international
   liquidity.

3. Political Factors: Political decisions, such as the Vietnam War, influenced U.S. economic policy and contributed to rising inflation and balance
   of payments deficits.

4. Technological Advancements: The rapid development of technology and communication systems facilitated faster and more efficient financial
   transactions, which also played a role in the dynamics of the currency crisis.

5. Global Economic Integration: The increasing integration of global economies meant that financial instability in one major economy could have
   ripple effects across the world, exacerbating the crisis.