PSAT Reading Practice Test 14

Questions 1-10 refer to the following information.

Paired Passages—Bretton Woods

The idea of a World Bank became a reality in 1944, when delegates to the Bretton Woods Conference pledged to "outlaw practices which are agreed to be harmful to world prosperity."

Passage 1

In 1944, 730 delegates from forty-four Allied
nations met in Bretton Woods, New Hampshire, just
as World War II was ending. They were attending
an important conference. This mostly forgotten
05event shaped our modern world because delegates
at the Bretton Woods Conference agreed on the
establishment of an international banking system.
To ensure that all nations would prosper, the
United States and other allied nations set rules
10for a postwar international economy. The Bretton
Woods system created the International Monetary
Fund (IMF). The IMF was founded as a kind of
global central bank from which member countries
could borrow money. The countries needed money
15to pay for their war costs. Today, the IMF facilitates
international trade by ensuring the stability of the
international monetary and financial system.
The Bretton Woods system also established the
World Bank. Although the World Bank shares
20similarities with the IMF, the two institutions remain
distinct. While the IMF maintains an orderly system
of payments and receipts between nations, the World
Bank is mainly a development institution. The World
Bank initially gave loans to European countries
25devastated by World War II, and today it lends money
and technical assistance specifically to economic
projects in developing countries. For example,
the World Bank might provide a low-interest loan
to a country attempting to improve education or
30health. The goal of the World Bank is to "bridge the
economic divide between poor and rich countries."
In short, the organizations differ in their purposes.
The Bank promotes economic and social progress so
people can live better lives, while the IMF represents
35the entire world in its goal to foster global monetary
cooperation and financial stability.
These two specific accomplishments of the
Bretton Woods Conference were major. However,
the Bretton Woods system particularly benefited
40the United States. It established the U.S. dollar as
the global currency. A global currency is one that
countries worldwide accept for all trade, or interna-
tional transactions of buying and selling. Because
only the U.S. could print dollars, the United States
45became the primary power behind both the IMF
and the World Bank. Today, global currencies
include the U.S. dollar, the euro (European Union
countries), and the yen (Japan).
The years after Bretton Woods have been consid-
50ered the golden age of the U.S. dollar. More impor-
tantly, the conference profoundly shaped foreign
trade for decades to come.

Passage 2

The financial system established at the 1944
Bretton Woods Conference endured for many
55years. Even after the United States abrogated
agreements made at the conference, the nation
continued to experience a powerful position in
international trade by having other countries tie
their currencies to the U.S. dollar. The world,
60however, is changing.
In reality, the Bretton Woods system lasted only
three decades. Then, in 1971, President Richard
Nixon introduced a new economic policy. It
marked the end of the Bretton Woods international
65monetary framework, and the action resulted in
worldwide financial crisis. Two cornerstones of
Bretton Woods, however, endured: the International
Monetary Fund (IMF) and the World Bank.
Since the collapse of the Bretton Woods system,
70IMF members have been trading using a flexible
exchange system. Namely, countries allow their
exchange rates to fluctuate in response to changing
conditions. The exchange rate between two curren-
cies, such as the Japanese yen and the U.S. dollar,
75for example, specifies how much one currency is
worth in terms of the other. An exchange rate of
120 yen to dollars means that 120 yen are worth the
same as one dollar.
Even so, the U.S. dollar has remained the most
80widely used money for international trade, and
having one currency for all trade may be better
than using a flexible exchange system.
This seems to be the thinking of a powerful
group of countries. The Group of Twenty (G20),
85which has called for a new Bretton Woods, consists
of governments and leaders from 20 of the world's
largest economies including China, the United
States, and the European Union. In 2009, for
example, the G20 announced plans to create a new
90global currency to replace the U.S. dollar's role as
the anchor currency. Many believe that China's
yuan, quickly climbing the financial ranks, is well on
its way to becoming a major world reserve currency.
In fact, an earlier 1988 article in The Economist
95stated, "30 years from now, Americans, Japanese,
Europeans, and people in many other rich coun-
tries and some relatively poor ones will probably be
paying for their shopping with the same currency."
The article predicted that the world supply of
100currency would be set by a new central bank of
the IMF. This prediction seems to be coming to
fruition since the G20 indicated that a "world cur-
rency is in waiting." For an international construct
such as the original Bretton Woods to last some
10526 years is nothing less than amazing. But move
over Bretton Woods; a new world order in finance
could be on the fast track.