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BRETTON Woods is the name of a scenic New Hampshire holiday resort, situated among mountains, woods and great natural beauty.
But when the world’s economic leaders started assembling here on July 1 1944, just over 70 years ago, much more than the spectacular view was on their minds.
They were planning nothing less than the restructuring of the entire world economy. And, although some of their decisions did not survive for very long, others are shaping the world even today.
As the month of July dawned, the Allied invasion of France was barely three weeks old. American, British and Canadian forces were locked in a titanic battle with the stubborn German defenders, and the final spectacular downfall of Adolf Hitler and the Nazi regime was still ten months in the future.
But for anyone with common sense, it was clear that Hitler’s time was running out. And it was not too early to start planning the new world, or rather its economic base.
Several important decisions were reached at the Bretton Woods conference, which lasted until July 22.
In order to understand the decisions reached here, it is important to know something of the international economic order before the outbreak of the Second World War.
The Industrial Revolution of the 19th century gave rise to what could be called a first round of economic globalisation. Trade flourished across all borders, not only inside Europe, but also between Europe, Asia and the Americas.
And, as history since the dawn of time indicates, trade is the crucial condition for economic well-being. No wonder the general mood before 1914 was optimistic. People expected a brave new world of technological and economic development, and an inexorable march towards improvement of man’s general condition across the planet.
Alas, a single shot on June 28 1914 in Sarajevo, the capital of Bosnia and Herzegovina, changed all that. This shot, which, like the first shot of the American Revolution in Concord on April 19 1775, was heard around the world, killed the successor to the Austrian-Hungarian throne.
Within a few weeks, Europe was embroiled in the Great War, which lasted for four long years and destroyed the entire world system.
Politically, three empires – Germany, Austria-Hungary and Russia – were brought down. In Russia, power was grabbed by Vladimir Lenin and his Bolsheviks. In Germany, the humiliation of 1918 helped bring Hitler and the Nazis to power.
Economically, much of the world retreated into economic nationalism and protectionism. Severe trade tarriffs were imposed to protect countries’ own economies, but only succeeded in impeding international trade and exacerbating the Great Depression of the 1930s.
Bretton Woods sought to change all that. The whole idea of economic nationalism and even economic blocs was to be abolished. Barriers impeding trade and the movement of capital were to be broken down.
To facilitate this, two international bodies were established. These, the International Monetary Fund (IMF) and the World Bank, have survived all changes since and play a crucial international economic role to this day. The establishment of the General Agreement on Trade and Tarriffs (GATT) was also an offshoot of the conference.
Dollar domination
Other decisions did not withstand the passage of time. Those present at Bretton Woods decided to make the US dollar the reserve international currency in which most transactions – like the selling of gold, other minerals and oil – world be done. Most currencies were pegged against the dollar.
In fact, the British fought hard for the pound to fulfil that role, and, to some extent, Bretton Woods was a power struggle between the Brits and the Yanks. Of course, having been impoverished by the war, the UK lost to the Yanks.
But the American victory was not universally welcomed. Even in 1965, French President Charles de Gaulle started moving away from the system, and in 1971 US President Richard Nixon formally abolished it.
Since then most currencies “float”, their international value being fixed by supply and demand. Nevertheless, the dollar’s position of power still largely stands.
But it appears that things are slowly changing once again. The French Mininster of Finance, Michel Sapin, has proposed that the euro be elevated to the position of international currency in the place of the dollar.
“We Europeans currently buy aircraft in dollars. Is that really necessary? I don’t think so,” Sapin said.
In reaction to American criticism against Russia’s annexation of the Crimea, that country is also considering letting its oil and gas clients pay either in roubles or euros.
All of this would mean a considerable dent in America’s economic and financial domination of the world. This would mirror the Obama administration’s political and military retreat from large parts of the world, including the Middle East and Europe.
History shows that no country can stay on top for ever. In time, everything always changes. And so the legacy of Bretton Woods is also slowly fading away.
- Fin24
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
