Bretton Woods Agreement


It said, “Everything is fair in Love and War!”, is it?

The economic devastation caused by the Great Depression in the 1930s left many countries struggling with high unemployment rates, poverty, and political instability. Many countries, including the United States, implemented protectionist trade policies in response to the Great Depression. This led to a decline in international trade and increased competition for resources, creating tension between countries. Countries had also engaged in competitive devaluations of their currencies, which destabilized the global economy and along with a few other factors contributed to the outbreak of World War II.

Towards the end of World War II, a collective need was felt to take steps to prevent a repeat of the economic chaos that had occurred during the interwar period, which had contributed to the outbreak of the war, which brings us to the Bretton Woods Agreement.

What was the Bretton Woods Agreement?

The Bretton Woods Agreement was signed in July 1944, toward the end of World War II. The agreement was negotiated by representatives of 44 Allied nations at a conference held in Bretton Woods, New Hampshire, USA. The main purpose of the agreement was to establish a new international monetary system that would help to promote economic stability and prevent a repeat of the economic chaos that had occurred during the interwar period.

It aimed to establish a system of fixed exchange rates, with the US dollar as the world's reserve currency. Under the agreement, other currencies would be tied to the US dollar at a fixed exchange rate, and central banks would be able to convert their dollars into gold at a fixed rate of $35 per ounce.

The two main parties to the agreement were the US and the UK, which were the dominant economic and military powers at the time. The US played a leading role in the negotiations and had the most influence over the final outcome of the agreement.

But why do the United States and the US Dollar have an upper hand in this agreement?

The US was a dominant economic and military power at the time. They had emerged from World War II as the world's largest economy, with a powerful military and vast reserves of gold. The US also had a vested interest in promoting international trade and investment, as it was a major exporter of goods and services.

In contrast, Europe was in a weakened state after the war, with its economies and infrastructure badly damaged. Europe also faced a number of political and social challenges, such as the need to rebuild their societies and economies, and the rise of communist movements.

Given these circumstances, the US was able to use its economic and military power to shape the terms of the Bretton Woods Agreement in its favor. The US was able to establish the US dollar as the world's reserve currency, and other countries were required to tie their currencies to the dollar at a fixed exchange rate.

What did the Bretton Woods Agreement facilitate and what was its impact?

As mentioned earlier, the Bretton Woods Agreement facilitated international trade and investment by providing a stable framework for the exchange of currencies. It provided a mechanism for countries to settle their international accounts through the International Monetary Fund (IMF). The IMF was established to provide loans to member countries facing balance of payments difficulties and to oversee the exchange rate system to ensure that countries complied with the rules of the agreement.

The agreement had a significant impact on the global economy and international trade. The fixed exchange rate system helped to promote economic stability and facilitate international trade and investment. Countries were able to rely on stable exchange rates when making international transactions, which helped to promote economic growth and reduce uncertainty. Growth was also seen in the international financial markets, as investors were able to make international transactions with greater ease and confidence. The agreement helped to promote the development of new financial products, such as international bonds and currency futures, which facilitated international investment and trade.

The Bretton Woods Agreement also helped in the reconstruction of Europe after World War II. The US provided significant financial assistance to Europe through the Marshall Plan, which helped to rebuild the economies of Western Europe and promote economic integration in the region.

And last but not the least, this agreement helped the United States to establish the US dollar as the world's reserve currency, which gave the US significant influence over the global economy. The US was able to print dollars to finance its international obligations, such as military spending and foreign aid, without having to worry about the value of the dollar being eroded by inflation.

End of the Bretton Woods Agreement -

Despite the initial success of the Bretton Woods Agreement, the system came under strain in the 1960s as the US experienced rising inflation and balance of payments deficits. The US government had been spending heavily on the Vietnam War and domestic programs, while also maintaining a fixed exchange rate system that required the country to maintain a stable supply of dollars.

As a result, the US began to print more dollars to finance its obligations, which led to inflation and a loss of confidence in the US dollar. Other countries began to demand gold in exchange for their dollars, which put pressure on the US gold reserves. Therefore, in 1971, President Richard Nixon announced that the US would no longer exchange dollars for gold, effectively ending the Bretton Woods Agreement. This event marked the end of the fixed exchange rate system and the beginning of a new era of floating exchange rates, in which currencies fluctuated in value based on market forces.

How did the end of the Bretton Woods Agreement impact the world?

The end of the Bretton Woods Agreement had a significant impact on the global economy and international trade. The floating exchange rate system led to greater volatility in currency values and made it more difficult for countries to manage their economies and conduct international transactions. It had major implications for developing countries, which were often at the mercy of market forces and vulnerable to sudden shifts in exchange rates. The IMF continued to play a significant role in managing the global economy, but its effectiveness was limited by the lack of a fixed exchange rate system.

In the years following the end of the Bretton Woods Agreement, there were many attempts to create new international monetary systems that could better manage the global economy. One such attempt was the European Monetary System (EMS), which was established in 1979 and aimed to promote monetary stability in Europe through a system of fixed exchange rates. The EMS was ultimately unsuccessful, and the system was replaced by the European Economic and Monetary Union (EMU) in 1999 which established the euro as another major reserve currency in the global economy.

Another attempt to create a new international monetary system was the Plaza Accord, which was signed by the finance ministers of the US, Japan, West Germany, France, and the UK in 1985. The accord aimed to address the issue of the US dollar's overvaluation and led to a significant depreciation of the dollar against other major currencies. It was successful in reducing the US trade deficit and promoting economic growth in other countries, but it also contributed to the growth of Japan's export-led economy and the subsequent economic bubble in the country.

Legacy of the Bretton Woods Agreement:

The legacy of the Bretton Woods Agreement is the role of the US dollar as the dominant global reserve currency. While the dollar has faced challenges in recent years from the rise of other currencies like the euro and the Chinese yuan, it remains the world's most widely held reserve currency. The use of the dollar as a reserve currency has helped to cement the US's position as the dominant global economic power, but it has also led to concerns about the stability of the global economy and the potential for financial crises.

As the global economy continues to evolve and new challenges emerge, it is important to learn from the lessons of the past and to work towards creating a more stable, sustainable, and equitable international economic system. Whether through reforming existing institutions or creating new ones, there is a need for continued efforts to promote economic development and stability for all countries around the world. Until next time…

Bretton Woods Agreement
Is USD Dying?

End of the US Dollar?

Yesterday, Donald Trump who served as the president of the United States from 2017 to 2021, said that “Dollar is crashing and will soon no longer be the world standard”. This statement sparked speculation and concern about the future of USD & global trade.

Firstly, it's important to understand what it means for a currency to be the world standard. The US dollar has held this position since the end of World War II, largely due to the strength and stability of the US economy. As the world standard, many countries use the dollar as a reserve currency, meaning they hold large amounts of dollars in their foreign exchange reserves. Additionally, most international trade and financial transactions are conducted in dollars. This gives the US a significant amount of influence over global economic affairs.

However, Trump's warning that the dollar could lose its status as the world standard is not a new concern. Many countries, have been looking for ways to reduce their dependence on the dollar and increase their own currencies' importance on the global stage. This is also called as “de-dollarisation” move. It is in part due to concerns about US economic policy (e.g. heavy money printing by US in period of COVID lockdown) and the potential for sanctions that could hurt their economies (e.g. sanctions on Russia)

We can also see the below chart, which shows the declining % of USD in global forex reserves.

India is no exception to this de-dollarisation move. RBI has given permission to banks from 18 countries to open Special Vostro Rupee Accounts (SVRA) and use Indian rupees to settle payments. Renowned economist Nouriel Roubini, also known as 'Dr. Doom' by Wall Street, in February said that the Indian rupee over time could become one of the global reserve currencies in the world. China has also been stepping up the use of the Yuan as a trade settling mechanism. Last year, Yuan-denominated trade flows between Russia and China surged. Vladimir Putin said he supports using the Chinese Yuan for trade settlements between Russia, Asia, Africa and Latin America.

But it is not just about standalone countries, the BRICS ally is also reportedly exploring the creation of a common currency for trade amongst themselves. BRICS stands for Brazil, Russia, India, China and South Africa, which is an alliance of 5 powerful emerging countries. The BRICS countries represented 31.4% of the global GDP (2020), but its members hold less than 15% of the voting power at both the World Bank and the International Monetary Fund. This move by BRICS can also help it to gain influence in global market.

A new financial arrangement, seen with potential to translate into a common BRICS currency, could be announced as soon as August 2023 at the forthcoming BRICS summit in South Africa. The plan is to initially transition to using domestic currencies in transactions, and then explore the introduction and circulation of a digital or an alternative form of currency.

The potential challenge in the success of this move is the bilateral differences between India and China due to ongoing military standoffs along the Line of Actual Control between the two Asian giants. However, Babakov, the deputy chairman of the Russian parliament, the State Duma, believes that the BRICS leader’s summit will reveal preparedness to implement this particular initiative, with work on the project ongoing.

In conclusion, the dominance of the US dollar in global finance has led to many countries exploring ways to circumvent its usage. However, only time will tell if these initiatives will be successful in the long run.

Is USD Dying?
What are Credit Default Swaps?


A credit default swap (CDS) is a financial contract between two parties in which one party (the protection buyer) pays a periodic fee to the other party (the protection seller) in exchange for protection against the risk of default by a third party (the reference entity) on a particular debt obligation. In simpler terms, a CDS is a type of insurance policy on a particular bond or loan.
If a credit event (such as default, bankruptcy, or restructuring) occurs with respect to the reference entity, the protection buyer receives a payout from the protection seller to compensate for the loss. The payout is usually the difference between the face value of the debt obligation and its market value after the credit event.

Let us understand CDS with an example

Suppose that Company XYZ issues $1 billion in corporate bonds with a maturity of 10 years. Investor A purchases $10 million of these bonds.
However, Investor A is concerned about the possibility of Company XYZ defaulting on its bond payments, which would result in the loss of its investment. To protect themselves against this risk, Investor A decides to enter into a credit default swap with Bank B.
Under the terms of the CDS, Investor A pays Bank B a periodic fee (say, 2% per year) for the duration of the bond term, in exchange for Bank B agreeing to compensate them if Company XYZ defaults on the bonds. Bank B becomes the protection seller, while Investor A becomes the protection buyer.
Now, let's say that five years into the bond term, Company XYZ experiences financial difficulties and misses a bond payment. This is considered a credit event, and Investor A can now make a claim on the CDS with Bank B.
Bank B will then pay Investor A an amount equal to the loss incurred from the bond default. For example, if the value of the bonds drops to $8 million due to the default, Bank B will pay Investor A $2 million (the difference between the original $10 million investment and the current $8 million market value of the bonds).
In this way, Investor A has effectively transferred the risk of default to Bank B in exchange for a periodic fee. Bank B, on the other hand, earns income from assuming the risk of default and can use the fee to offset any potential losses.

Recently the price of Credit Suisse’s one-year credit default swaps surged which means the premium for securing these bonds is rising. Generally, CDS are high for risky bonds, and as the price of Credit Suisse’s one-year credit default swaps is rising so are the bonds risky? Is there a risk of default and if yes what would be the impact on India if such an event occurs? These are some of the important questions associated with the rising CDS of Credit Suisse and to know the answers to all such questions do checkout the below YouTube video on my channel



What are Credit Default Swaps?
The Indian Wedding Industry


The Indian wedding industry made almost 3.75lakh crores in November and December 2022 across 32 lakhs weddings and that’s more than the auto market in India. The industry is the fourth biggest industry but is still so underdeveloped and unorganized.

Since a few years ago, it has been observed how a wedding has evolved from a simple ceremony for tying the knot, the twinning of hearts, sharing of food, and family into a planned sequence of occasions that supports numerous sectors. The transformation of the big fat, big budget, big crowds, and show of strength statement weddings into small, big budget, and intimate weddings similar to the Virushka wedding is now becoming the new normal and is also a preference of many couples who want to cherish the special moments in a cozy setting. This has caused a number of tiny specialist enterprises to emerging, supporting this industry's 25–30% annual growth rate.

There are various components that make this industry Rs 3.75 lakh crore economy. These are catering and venue services which take about 30%, gifts take 19%, decoration 14%, event planning 12%, logistics 9%, honeymoon 8%, photography 3%, make-up 3%, and invites 2%.

The wedding industry isn’t one industry per se but many big and small industries that make it what it is. Let us have a look at the businesses that gain from India’s wedding bonanza

1.  Matrimony Portals
2. Jewellery
3. Clothing
4. Hotels
5. Luggage and some others

About 60,000 crore worth of jewellery is bought annually for weddings, 5000 crore worth of hotel rooms are booked yearly, and about 10,000 crore worth of apparel is bought yearly.

According to a survey conducted by WeddingWire India last month, 31% of wedding industry vendors have decided to raise their prices due to high product and labour costs across categories, and nearly half of the company's wedding vendors' monthly earnings (42.5%) have increased in 2022 compared to 2019.

Despite any standards or regulations, the wedding business is prospering. Business in this sector is primarily driven by recommendations, reviews, and word of mouth. Vendors and clients would benefit from a (self)-the regulatory agency that provides a one-stop shop for wedding-related services. Customers would choose the best service provider based on their preferences and budget after all registered vendors had to disclose pricing and service data openly, and transparently. The industry should be allowed to adopt this coordinated framework, which is already used by five-star hotels and clubs and provides a win-win situation for all parties involved.

To know different perspectives on Indian Weddings I will be coming up with a very special video on my YouTube Channel so stay tuned!

To know more about what goes into the financial planning of wedding, please checkout the video below:
The Indian Wedding Industry
International Trade Settlemment in Indian Rupees


The RBI established the rupee trade settlement mechanism in July 2022. The Mechanism is a way to do international business using rupees rather than dollars or other major currencies, with a focus on Indian exports, in order to foster the growing interest of the world trading community in the rupee.

The RBI's decision on rupee-denominated trade was made in an effort to decrease India's trade imbalance since it is easier for India to increase its share of Russian oil purchases at lower rates.

Dollar-strapped Sri Lanka and Sanctions hit Russia are going to be the first nations to utilize the Indian Rupee Trade Settlement Mechanism.

What Does this mean for India?

As the world's reserve currency, the dollar is used to settle the majority of import and export transactions.

Let’s say an Indian buyer enters into a transaction with France then the Indian buyer must exchange his rupees for US dollars first. These dollars will be sent to the vendor, who will then exchange them for euros. In this case, the cost of currency conversion and the risk of exchange rate fluctuations is borne by both parties. However, if the counterparty has a Vostro account, the transaction will be settled in Indian rupees rather than exchanging dollars.

A Vostro account is a domestic bank-maintained account that holds the assets of a foreign entity in local currency. The Vostro account is frequently used to speed up the settlement of transactions involving Indian rupees. As of right now, the RBI has approved the opening of 12 Vostro accounts for trading Indian rupees.

India and its bigger trading partners, Saudi Arabia and the UAE continue to discuss the viability of trade in rupees. Countries like Tajikistan, Cuba, Luxembourg, and Sudan have also shown interest in the rupee trade mechanism.

Additionally, because India has a trade deficit—its imports exceed its exports—settling trades in rupees will prevent the outflow of dollars. Saving currency outflows becomes even more important for the RBI at a time when the value of the rupee against the US dollar is falling every week.

Benefits for India

1.  No foreign exchange risk is involved.
2. Exporters will be able to set the most competitive pricing for their exports as they will be entitled to all the other benefits like export incentive schemes, RoDTEP (Refund of Duties and Taxes on exported Goods)
3. Long-term influence on regional nations wanting to trade with India.
4. Reduce India’s dependency on the US dollar

The most recent trade statistics show that in April and May, India imported $2.5 billion worth of goods from Russia. This annualizes to $30 billion, and according to analysts, it might reach $36 billion.

In the best-case scenario, India would wind up saving $30-36 billion in dollar outflows if it paid for all of its Russian imports in rupees.

A currency is typically referred to as international if it is widely used as a means of exchange for trade on a global scale. According to the RBI, using rupees for trade settlement would lessen reliance on hard currencies like the dollar, euro, and yen.

As per the recent developments in the trade settlement mechanism, we may expect the Indian rupee to emerge as a global currency in the coming years.


International Trade Settlemment in Indian Rupees
What is Digital Rupee?

What is Digital Rupee?

A month after testing the wholesale central bank digital currency, the Reserve Bank of India (RBI) on Tuesday announced a trial for retail digital rupee (e₹-R) commencing on December 1 with four banks in as many cities participating in the pilot programme.

What is Digital Rupee?

CBDC is a legal tender that is issued in digital form by the central bank, as stated by the Reserve Bank. It is interchangeable 1:1 with the fiat currency and functions just like a sovereign currency.

The central bank defined its goals for the digital rupee in a "concept note" on Central Bank Digital Currency (CBDC). It also outlined the justification for creating a CBDC and how it will function as an alternative.

Classification of Digital rupee

Central bank Digital currency can be classified into two types:

1) Retail (CBDC-R): Retail CBDC would be potentially available for use by all.
2) Wholesale (CBDC-W):  is designed for restricted access to select financial institutions.

For the wholesale pilot project for the digital rupee which has rolled out on 1st November 2022, the RBI has chosen nine banks to take part. These include the Union Bank of IndiaState Bank of India, Bank of Baroda, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.

The application of the wholesale digital rupee is for the settlement of transactions in government securities.

The Retail pilot project is going to get started on a trial basis from 1st December 2022. The program would cover selected locations in a closed user group (CUG) comprising participating customers and merchants and has identified eight banks for gradual participation. The first phase will begin with four banks including State Bank of India, ICICI bank, yes bank, and IDFC first bank, and would initially cover Mumbai, New Delhi, Bengaluru, and Bhubaneshwar.

How will the Digital rupee work?

The Digital rupee will be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued. Users can transact with E-rupee through a digital wallet offered by participating banks and stored on mobile phones. Digital rupee transactions can be both person-to-person and person to merchant. Payments to merchants could be made using QR codes displayed at merchant’s locations.

The advantage of Digital currency over existing digital payment systems is that payments through digital currency would be final, without requiring interbank settlement. Reducing operational costs associated with physical cash management, promoting financial inclusion, bringing resilience, efficiency, and innovation to the payments system, enhancing efficiency in the settlement system, and fostering innovation in cross-border payments are among the main drivers for considering the issuance of CBDC in India.

Future of Digital currency?

One of the main advantages for users is that the central bank's digital money would provide better anonymity than traditional digital transactions. India is a developing country with a number of digital payment options now, but this would give people even more choices. Currently, it is being done as a pilot, but once it reaches a certain critical mass, it will eventually become the next big thing in the payments arena. India is dedicated to building a digital payments ecosystem with innovations that realize the concept of "Ease of Living" and guarantee that social assistance benefits are provided to those who need it the most.

What is Digital Rupee?
Is silver ready to shine?


As per a recent article of Business standard, Mutual Fund Houses have launched a clutch of new fund offers in the Silver ETF  (exchange traded fund) category this year and collected Rs 1,400 crore in assets.
But why all of sudden Mutual Fund Houses are coming with so many Silver ETF & Fund-of-Fund options, & investing in silver has become a bandwagon? well there are different reasons for that, lets understand them through a crisp analysis below!!

Silver as an Asset class:
Silver comes under the category of precious metal; thus, it has the use case of jewellery & investing, but apart from that, Silver has many use cases in Industry, because of its quality of having high electrical conductivity, high thermal conductivity, high reflectivity. Don’t let these science words bog you down, we are here to simplify things for you . Simply speaking silver is useful in preparation of new-age Batteries, Smart phones, Electric Vehicles, Water filters, Solar panels, medical applications like disinfectants, Mirrors, Coatings, etc.
These Industries are expected to be grow good & bring good demand for silver. And as per the economic equilibrium rule, increase in demand is expected to give increase in prices.

Regulatory Updates:
SEBI (Securities Exchange Board of India), the Market regulator has in November 2021, given permission for Silver ETFs, and that is a catalyst for so many Fund houses coming with ETFs & Fund-of-Fund in recent times.

Technical Analysis:

The Price of Silver is near to its support level at 61.8% retracement, this is one of the reasons why some Analyst believes that Silver is expected to have up move from here.

So, is it all rosy?
As every coin has two sides, there are opposing views too. As per past trends, it is seen that silver prices are affected by the value of the rupee against the dollar. Any decrease in the value of the dollar sees the demand for silver increase, & vice versa. And taking into consideration the Monetary tightening going on in USA, the value of USD is expected to appreciate against INR, in-turn pulling the value of silver to down.

Considering all the factors in mind, we can say that the commodity silver which is having good use cases in growing industries, is trading at its support level, which can give the Investor good risk-to-reward ratio.


Is silver ready to shine?
Inflation ate my maggi?


Do you remember the days when the 10 Rs. Maggi used to cater the evening snack of 2 people, and now it is hardly enough for one person…. or do you remember the size of 10 Rs. Parle-G biscuit packet some years back, wasn’t that plentiful! Now indeed it has reduced. This phenomenon that we have experienced is called “Shrinkflation”.

What is Shrinkflation?

Shrinkflation is a form of hidden Inflation, wherein producers now sell the product at same price but with reduced quantity. This term shrinkflation was first coined by British economist Pippa Malmgren in 2009.

What causes Shrinkflation:

Increased Production cost combined with intense competition:

Rising production costs are generally the primary cause of shrinkflation. Increase in the cost of raw materials, energy commodities and labour cost increases the production costs and subsequently they can diminish producer’s profit margins. Thus, in order to maintain the profit level, the producer has to either increase the price of product or offer reduced quantity at same price.

However, due to intense market competition on price level, there is threat to the producer of losing out on consumers if the prices are increased. For the sake of example let us say, both Cola & Pepsi are selling one bottle at Rs. 30 and you frequently buy Cola, but one day Cola increases price from 30 to 35, then wouldn’t your mind incline towards Pepsi?

Various studies have also found that the consumers are far less sensitive to quantity reductions than they are to price increases. Thus, many producers resort to “shrinkflation” than increasing the price of the product.

Indian Scenario:

In India, major industry players in the FMCG domain like Dabur, Hindustan Unilever, Nestle, Britannia, Coca Cola, Pepsi Co, P&G etc. have opted for Shrinkflation strategy. From snacks, chocolates, to bar soap, everything is undergoing ‘Shrinkflation.’

As per ET, Dabur has also reduced the quantity of certain products, to protect 5 and 10 rupee ‘sacred price points’, said Chief Executive Officer Mohit Malhotra.

Also, currently the 10 Rs. Vim bar soap weighs 135 grams as compared to 155 grams about three months ago, a Delhi-based distributor said. At the same price point, a pack of aloo bhujia, a popular crunchy and salty snack, made by Haldiram’s fell to 42 grams from 55 grams, as per ET.


By adopting this strategy, even though seemingly there is no increased pinch to the pocket of consumers, the price per unit of weight or volume which the consumer pays for, increases.

Inflation ate my maggi?