David talks to Helen Thompson about the economic order that was created in the aftermath of the Second World War. What was agreed at Bretton Woods, how did it work, why did it eventually fail, and can any of it be revived?
Talking Points:
The Bretton Woods system:
- Established a system of fixed exchange rates with the U.S. dollar as the international reserve currency (other currencies were pegged to the dollar, and the dollar was pegged to gold)
- Created the IMF and the World Bank
- Established capital controls
On the surface, Bretton Woods is a success story.
- The following three decades were a period of economic growth and relative stability.
- But there are other parts of that story too, such as low oil prices.
- The system had to be patched up many times from 1961 onward, in part because of the misaligned role of dollars and gold.
- Bretton Woods also created a problem for U.S. presidents who had to balance domestic and international pressures on the dollar.
The election of Richard Nixon in 1968 marked the beginning of the end for Bretton Woods.
- Nixon didn’t like Bretton Woods because it imposed domestic constraints that were at odds with his protectionist message.
- In 1971, Nixon ended dollar/gold convertibility. By 1973, it was clear that there was no longer the will to sustain Bretton Woods.
The Bretton woods system was a function of American power—there’s no going back now.
- A system like Bretton Woods needs an anchoring power.
- China doesn’t have a currency that is convertible in the same way and the Chinese are wary of the domestic pitfalls of becoming the international currency.
Further Learning:
And as ever, recommended reading curated by our friends at the LRB can be found here: lrb.co.uk/talking
Set your alarms… for Thursday when David talks to Martin Rees about how we should evaluate the greatest threats facing the human species in the twenty-first century.
