Final answer:
The Bretton Woods Agreement collapsed due to exchange rate pressures, dollar overvaluation, and lack of flexibility.
Step-by-step explanation:
The Bretton Woods Agreement was a system of monetary management established after World War II to govern monetary relations among nation-states. It aimed to prevent trade barriers and economic depressions. However, the agreement eventually collapsed due to several reasons:
1. Exchange rate pressures:
The fixed exchange rate regime imposed by the agreement led to increasing exchange rate pressures, particularly on the US dollar. As other countries demanded to exchange their dollars for gold, the US gold reserves dwindled.
2. Dollar overvaluation:
The US dollar became overvalued due to its role as the international reserve currency. This made American goods more expensive and less competitive in the global market.
3. Lack of flexibility:
The fixed exchange rate system limited the ability of countries to adjust their exchange rates according to their economic needs. This lack of flexibility hindered economic growth and stability.