The Bretton Woods adjustment problem reflected the rigidity of lower wages and prices, which prevented the normal adjustment of prices to the gold standard price flow mechanism. As a result, payment deficits are linked to rising unemployment and recession. This was the problem of the United Kingdom, which alternated between an expansionary monetary and fiscal policy, and then in the face of a monetary crisis, austerity – a policy called «stop-go». For surplus countries, the inflationary pressures they would try to block through sterilization and capital controls. It was not until 1958 that the Bretton Woods system became fully operational. After their implementation, the provisions required that the U.S. dollar be pepped to the value of gold. In addition, all other currencies in the system have been indexed to the value of the U.S. dollar. The exchange rate applied at the time put the price of gold at $35 per ounce.
However, the increase in state intervention in the national economy has led to a sense of isolationism that has had a profoundly negative impact on the international economy. The priority of national objectives, the independence of national action in the interwar period and the inability to recognize that these national objectives could not be achieved without any form of international cooperation – all this led to a policy of «begging-neighbours» such as high tariffs, competitive devaluations that contributed to the collapse of the international monetary system based on gold, political instability and international war. The lesson learned was, as the principal architect of Bretton Woods` new drug dealer Harry Dexter White put it: in 1968, the attempt to defend the dollar with a firm commitment of $35/ounce had become increasingly unsustainable the policy of the Eisenhower, Kennedy and Johnson administration. Gold outflows from the United States accelerated and, although Germany and other nations promised to maintain gold, the Johnson administration`s unbalanced budget spending turned the dollar shortage of the 1940s and 1950s into a wave of dollars in the 1960s. In 1967, the IMF agreed in Rio de Janeiro to replace the department in tranches established in 1946. Special drawing rights (DSDs) were set at one dollar, but were not usable for transactions other than between banks and the IMF.