By Paulo L. dos Santos and
鈥淥ne of the chief contributions to peace that the Bretton Woods program offers is that it will free the small and even the middle-sized nations from the danger of economic aggression by more powerful neighbours. The lesser nation will no longer be obliged to look to a single powerful country for monetary support or capital for development, and have to make dangerous political and economic concessions in the process. Political independence in the past has often proved to be sham when economic independence did not go with it.鈥� 鈥擧enry Morgenthou Jr (1945)
The world economy has a Dollar problem. Reliance on the currency of a single country as the world鈥檚 chief way to organise trade, carry out financial settlements, and store value creates a series of inequitable economic imbalances and policy tensions鈥攂oth within the US and across the global economy. It bestows disproportionate economic and political power on the US government and financial institutions; exposes world trade and finance to聽聽originating in the Dollar zone; imposes huge costs on the world鈥檚 small and even middle-sized nations; and fuels聽聽in the US financial sector, bolstering its influence in that country鈥檚 political economy.
A Historical Problem
This problem is not new. In fact, the inability to develop an equitable and genuinely multilateral international monetary system is one of capitalism鈥檚 most striking institutional failures, going back to the early days of the industrial revolution. The gold standard of that time and its successors have always some economies at the expense of others, and created favouring the interests of creditors and capital, at the expense of debtors and wage earners.
Only once in the history of capitalism did policy-makers from leading capitalist powers even consider the possibility of building a genuinely multilateral, equitable system: during the on the post-World-War-II economic order. But despite the aspirations and statements of participants like John M Keynes and then-US Treasury Secretary Henry Morgenthou Jr, the Bretton Woods conference led to the creation of , under which foreign central banks could present dollars to the Federal Reserve for exchange into gold.
That system effectively charged US authorities with the supply of the world鈥檚 ultimate international reserves. In this task they were constrained only by the willingness of central banks in other states to hold Dollars instead of gold. As French Finance Minister Giscard d鈥橢staing put it in the 1960s, this arrangement defined an for the US economy, which enjoyed a lot of space for effectively issuing Dollars to acquire goods and assets overseas.
By the late 1960s, it became clear that the US economy under the Bretton Woods system. Its steady in international trade, fiscal pressures from its protracted, losing war in Vietnam, and increases in social spending in response to domestic political turmoil, led to growing trade deficits, mass outflows of Dollars, and concerns that US authorities would not be able to meet foreign demand for convertibility of greenbacks into gold. In response, the US unilaterally abandoned its commitment to convertibility in 1971.
Coming amidst a series of successful national liberation and anti-colonial struggles across the world, the US鈥檚 inability to sustain the Bretton Woods system fed hopes that a new, equitable international monetary order could be constructed. The 1974聽聽for a New International Economic Order explicitly pointed to the need for a new monetary system centered on the 鈥減romotion of the development of the developing countries and the adequate flow of real resources to them鈥� as means to dismantle 鈥渢he remaining vestiges of colonial domination鈥� and removing the obstacles in the way of international convergence in measures of economic development and living standards.
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