The Bretton woods system, or As the United States seized world domination
The Bretton woods conference of 1944. Photo: AP/TASS
As we had quite a controversial topic of conspiracy theories: From the Medici to the Rothschilds, but now we are talking about very real things.
72 years ago, July 1, 1944, began a fundamental change in the global economy, recorded in the agreements a few days later. However, an understanding of what happened came to ordinary people much later.
The world of Finance has always been something like a mixture of gymnastics with the magic of circus magicians. Most of his basic concepts difficult to understand not only the ear, but completely conventional in nature. At the same time finances are inextricably linked to money, and money has always been a tool of power. Not surprisingly, with their help, for many centuries, someone was always trying to take over the world.
For example, in July 1944, at the hotel “Mount Washington” in the resort town of Bretton woods (new Hampshire, USA), a group of gentlemen held a conference, the result of which was the eponymous global financial system, which marked the final victory of America over its long-standing geopolitical rival of the world — great Britain. The winner got the rest of the world — or rather, almost all, as the Soviet Union to join the new system refused. However, for US it was only an intermediate step towards the global financial hegemony, to reach which America has managed, but to stay on Olympus, apparently, she was not destined.
The big way
The transition from subsistence farming to machine production, among other things, caused widespread productivity growth, thereby forming a substantial trade surplus that local markets to absorb could not. It has induced countries to expand foreign trade. For example, for the 1800-1860 years, the average annual volume of Russian exports increased from 60 million to 230 million rubles and imports — from 40 million to 210 million But the Russian Empire in international trade took not the first place. The leading position belonged to the UK, France, Germany and the United States.
Such a large-scale exchange of goods could not fit in the narrow framework of the natural economy and demanded a wide use of a common denominator in the form of money. It’s created a problem matching them to the cost among themselves, which ultimately led to the recognition of gold as a universal equivalent of value. Gold served as money for centuries, it had all the “big players”, it is traditionally minted coin. But more important was another. The international trade realized the need not only of the mechanism of predictability in the value of money, but also the importance of stability in the ratio of their value among themselves.
The binding of national currencies to gold makes it very easy to solve both tasks at once. Your wrapper is “worth”, say, one ounce (31.1 g) of gold, my — two ounces, hence my wrapper “equal” to your two. By 1867, this system finally emerged and was enshrined at the conference of industrialized countries in Paris. The world’s leading trading nation of that time was Britain, because it established a stable exchange rate 4,248 British pound per ounce has become a kind of Foundation for the global financial system. Other currencies are also expressed in gold, but after the pound in the share of world trade, ultimately came to its expression in terms of the British pound.
But even then, the United States began its own game to overthrow the British monetary hegemony. At the Paris monetary system of the United States have not only the fixing of the dollar to gold (20,672 per ounce), but also recorded the rule that free trade in gold could be carried out only in two places: in London and new York. And nowhere else. Historically gold mint parity: 4,866 U.S. dollars per British pound. The other currencies had the right to vary only within the shipping cost for the amount of gold equivalent to one unit of foreign currency, between the Golden courts of great Britain and the United States. In the event of going beyond the boundaries of the corridor begins to drain gold out of the country or, conversely, its tributary that determined the negativity or positivity to balance the national balance of payments. Therefore, the system quickly returned to equilibrium.
In this form of gold standard existed until the outbreak of the First world war and ensured the efficiency of the mechanism of international Finance. Although even then, Britain was faced with the problem of cyclical expansion-contraction of the money supply, is fraught with the depletion of national gold reserves.
The great war, as it was then called the First world war, undermined the world economy, which could not affect its financial system. London could no longer play the role of world reserve currency alone. The size of the domestic economy simply does not generate as much gold to meet the demand of other countries for British pounds, and own the British trade balance remained negative. This meant the actual bankruptcy of the British lion, but the gentlemen of the city went to clever and at the international economic conference in Genoa in 1922 proposed a new standard, known as the gold exchange. Technically he almost did not differ from Paris’s “Golden”, unless the dollar is officially recognised international measure of value equal to gold. Then began a small fraud. The dollar kept the gold standard, and the pound — rigid exchange rate peg to the dollar, but to exchange it for the equivalent in gold have been impossible.
The conference in Genoa in 1922. Photo: ics.purdue.edu
The parade will be I
However, the Genoa currency system has existed not for long. In 1931, Britain was forced to officially cancel the convertibility of the pound into gold, and the Great depression forced America to redefine the gold content of its currency with of 20.65 to $ 35 per ounce. USA, were the positive balance of trade, started active expansion in Europe. To protect Britain and other leading countries have put prohibitive tariffs and direct import restrictions. The volume of international trade and, accordingly, the settlements fell sharply. Currency exchange for gold in all countries was discontinued, and in 1937, the world monetary system ceased to exist.
Unfortunately, before his death, she managed to lead the banking circles of the USA to think about the possibility of capturing the full leadership in the global economy through the attainment of the dollar’s status as the sole reserve system. And ravaged Europe in the Second world war occurred here could not be more helpful. If Hitler did not exist, it would come up in Washington.
So when 1st of July 1944, representatives of 44 countries, including the Soviet Union, gathered at the Bretton Woods conference to address the issue of financial device of the postwar world, the United States proposed a system very similar to the one that “worked fine previously”, and at the same time bringing the world to the official recognition of the leading role of America. In short, it looked simple and elegant. The us dollar is tied to gold (still the same $ 35 per Troy ounce, or 0,88571 g per dollar). All other currencies fixed rates to the dollar and can change no more than plus or minus 0.75% of this value. In addition to the dollar and the pound, no currency in the world had no right to exchange for gold.
In fact, the dollar became the only global reserve currency. The British pound maintained a certain privileged status, but by that time, more than 70% of the world gold supply was in the US (21 800 tons), the dollar was used in more than 60% of international trade settlement, and Washington in exchange for the ratification of the Bretton woods conditions promised huge loans for the restoration of economies after the war. So, the Soviet Union proposed to allocate $ 6 billion, which was a huge amount, as the entire volume of lend-lease was estimated to be 11 billion. However, Stalin correctly assessed the implications and suggestions wisely refused that the Soviet Union signed the Bretton Woods agreement, but never ratified.
The governments of the other European countries actually signed bondage and ratification of the Bretton woods conditions could issue as much private money as their Central banks were the world’s reserve currency — the us dollars. It gave US a tremendous opportunity to control the entire world economy. It also allowed them to establish the international monetary Fund, world Bank and GATT — the General agreement on tariffs and trade, later transformed into the world trade organization (WTO).
The world began to live under the Bretton woods system (BVS).
A trading room in wall street, USA, 1939. Photo: hudson.org
As the external debt of the UK and the USA year by year increased and soon exceeded the amount of gold reserves of these countries, and governments of foreign countries became more and more convinced that, while maintaining the existing international monetary system, they are forced to Finance the deficits of Britain and the United States (a policy which they could not control and at times may not agree with it), these two conditions began to contradict each other.
The Bretton woods system was well-conceived but effectively only work under the condition of stability of the main reserve currency. And this condition in the end was not respected. In the 60 years of the U.S. balance of payments was mainly with a negative balance and this meant that the number of dollars in the hands of foreigners increased rapidly with the depletion of gold reserves of the United States.
During the 1960s, the dollar has gradually lost its ability to be exchanged for gold, however, the contractual credit-reserve standard was allowed to keep at least visibility of the existence of the gold exchange standard. The U.S. long enough managed to evade the need to eliminate balance of payments deficits through changes in domestic economic policies or the dollar. In the end, however, when the us government instead of increasing tax rates would increase the money in circulation to pay the costs of the war in Vietnam, the U.S. experienced a surge in inflation. The growth of the money supply, interest rates fell and domestic prices soared, which led to reduced competitiveness of American goods abroad.
The first crisis erupted in October 1960, when the price of gold on the private market in a short time has risen to $ 40. per ounce at the official price of $ 35. ounce. This crisis was followed by gold, the dollar and sterling crises. Such a development would soon be completed to collapse the entire world monetary system, like the collapse of 1931, but in reality it has led to an unprecedented close cooperation of all the world’s leading countries in the monetary sphere and increased the willingness of countries possessing excess reserves, to continue to Fund the operation to rescue monetary system in the period, while there was a discussion of fundamental reforms.
Despite the growing income from foreign investments, the positive balance of the balance of payments of the United States of articles of trade in goods and services (including income from foreign investments), transfers and pensions, which reached us $ 7.5 billion. in 1964, gave way to a deficit of approx. $ 800 million. in 1971. In addition, the volume of capital exports from the United States all these years was steady at 1% of gross national product; if, however, in the late 1960s, years of high interest rates in the country contributed to the inflow in the USA approx. $ 24 billion. foreign capital, in the early 1970s, low interest rates caused a massive dumping of the securities and the outflow of investments abroad.
With all the elegance of design and great prospects for the US UAV itself contained a fundamental problem that has manifested itself in the days of the “gold standard”. While the US economy was about one-third of the world, and if you subtract socialist countries, 60% of the total economy of the West, the dollar’s share issued for on-lending of foreign financial systems was significantly less than the money supply, circulating in the United States. The balance of payments was positive, thereby providing America with the opportunity to continue to prosper. But as the recovery of the European economy, the U.S. share began to decline, and American capital, using the cost of the dollar, began to leak abroad to buy up cheap foreign assets. In addition, the profitability of foreign investments exceeded three times the yield of the U.S. market, which further stimulated the outflow of capital from the United States. The trade balance of America, it gradually became negative.
Not helped by existing in BVS severe restrictions on trade in gold, effectively limiting its purchase even the Central banks of other States, and any private investors generally deprived of such opportunities. In addition, the emerged transnational corporations have used their capital for foreign exchange trading games, including “against the dollar.” The growing imbalance between the theoretical model BVS and the actual situation in the world economy not only led to the emergence of a black market in gold and driving its price there up to more than $ 60 per ounce, that is, twice the official.
It is clear that for a long time this discrepancy could not continue. It is believed that BVS broke the French President, General de Gaulle brought together “ship dollars” and present it to US for an immediate exchange for gold. This story really took place. At a meeting with President Lyndon Johnson in 1965, de Gaulle announced that France has 1.5 billion paper dollars, which intends to exchange for the yellow metal at the officially fixed exchange rate of 35 dollars per ounce. According to the rules, the US had to transfer to the French more than 1300 tons of gold. Given that by this time the exact size of the gold reserve of the United States, no one knew, but there were persistent rumors about his reduction to 9 million tons, and the cost of the whole mass of printed dollars was clearly superior to the equivalent of even the official number of 21 thousand tons, America is on such exchange could not agree. However France by hard pressure (so, the country withdrew from NATO’s military organization) was able to overcome the resistance of Washington and for two years, together with Germany, thus to take out of USA more than 3 thousand tons of gold.
The ability of the U.S. to maintain the dollar’s convertibility into gold became impossible. By the early 70s there was a redistribution of gold reserves in favor of Europe, and international transactions involving all cash and cashless USD. The credibility of the dollar as the reserve currency further fell because of the huge balance of payments deficit of the United States. The U.S. deficit on official settlements reached unprecedented dimensions – 10,7 billion. in 1970 and $ 30.5 billion. in 1971, with a maximum of 49.5 billion. (annualized) in the third quarter of 1971.
There were significant problems with international liquidity, since gold mining was small compared to the growth in international trade. Formed new financial centers (Western Europe, Japan), and their national currencies began gradually to use as a backup. This has led to the loss of US his absolute dominant position in the financial world.
In accordance with the IMF rules, the excess dollars on the private Forex market was absorbed by foreign Central banks that needed to maintain the existing currency parities. However, such actions gave rise to the expected depreciation of the dollar against the stronger currencies of countries with dollar demands for huge sums, in particular, France, West Germany and Japan. These expectations were backed up by official statements of the U.S. government that it considers the exchange rate fluctuation as a measure needed to restore equilibrium of the balance of payments and the competitiveness of U.S. goods in foreign markets. On 15 August 1971 the United States officially announced the suspension of exchange of dollars for gold. At the same time to strengthen its position in upcoming negotiations, the United States imposed a temporary 10-percent premium to import duties. The introduction of allowances had two goals: to restrict imports through price rise and warn governments of foreign countries that if they did not take drastic steps, contributing to the growth of U.S. exports, the volume of their exports to the US will be severely restricted.
The story of the Bretton woods financial system ended, after such embarrassment the US under different pretexts refused to change green paper for real gold. On 15 August 1971 the next US President Richard Nixon formally abolished the gold backing of the dollar.
For 27 years, BVS has made important — erected the us dollar on top of the world of Finance and firmly associated it with the concept of self-value. That is, the value of this piece of paper gave only what it says — “dollar” — and not the amount of gold which it would be possible to change. The abandonment of the gold backing was removed from the U.S. last restrictions on monetary emissions. Now the fed is officially resolved at its meeting of how the world should the dollars is absolutely not worrying about any sort of security.
The Smithsonian agreement.
After listening to the 15 August of the statements of those countries which had a positive balance of the balance of payments, which have not yet switched to the floating exchange rates of their currencies, were forced to do it. However, the governing monetary institutions of these countries have tried to limit the effective exchange rates of their currencies and thus to preserve the competitiveness of their products in international markets. At the same time, the government sought to avoid a return to the destructive protectionist policies that prevailed in the world in 1931 after the termination of the exchange pounds for gold could again become the dominant now, it stopped when the exchange for gold dollars. The risk of a return to the past has been addressed through agreements reached on 18 December 1971 in the negotiations between the representatives of the countries of “group of ten” in the Smithsonian Institute (Washington).
Firstly, it was agreed the terms of a multilateral renegotiation of exchange rates resulting in the devaluation of the US dollar to gold by 7.89% and simultaneous increase of exchange rates of many other countries. As a result, the value of the leading currencies of the world with respect to the old dollar parity increased by 7-19%. Until the beginning of 1972 many other countries have not changed the IMF fixed exchange parities; as a result, the value of their currencies against the dollar also went up automatically. Some countries have resorted to the adjustment of the parity of their currencies to maintain the exchange rate against the dollar, while the other was increased or decreased courses of national currencies to the dollar. Second, “Group of ten” agreed to temporarily set the limits of permissible fluctuations in the level of 2.25% of the new exchange rate, yet exclude the free “floating” currencies. Thirdly, the United States agreed to abolish a 10 percent premium to import duties.
The result of these measures, the gold standard was transformed into a paper-dollar standard, under which all countries, except USA, took the risky commitment to support the new exchange rates, actually enshrined in the Smithsonian agreement.
The Jamaican system
Supporters of monetarism advocated market regulation versus government intervention, raised the idea of automatic regulation of the balance of payments, proposed to introduce a regime of floating exchange rates (M. Friedman, F. Machlup, etc.). Neokeynesians made the turn to the earlier rejected the idea of John. M. Keynes on the establishment of international currency (Triffin R., W. Martin, and A. Dey. F. Peru, J. Denise). USA headed into the final demonetization gold and the creation of international liquidity to support the dollar. Western Europe, especially France, sought to limit the hegemony of the dollar and to extend loans to the IMF.
Finding a way out of the financial crisis were long first in academic and then in the ruling circles and numerous committees. The IMF prepared in 1972-1974, a draft reform of the world monetary system.
Her unit was formally agreed at a conference of the IMF in Kingston (Jamaica) in January, 1976 the agreement of member countries of the IMF. The basis of the Jamaican system is based on the principle of complete abandonment of the gold standard. The causes of the crisis described article of the Bretton woods monetary system. Finally the rules and principles regulation was formed in 1978 when the majority of votes ratified the change in the IMF Charter. Thus was created the current world monetary system.
According to the plan of Jamaican currency system was supposed to be more flexible than Bretton woods, and faster to adapt to the instability of the balance of payments and exchange rates of national currencies. However, despite the adoption of floating exchange rates, the dollar formally deprived of the status of the main means of payment remained in this role because of more powerful economic, scientific-technical and military potential of the United States compared to other countries.
In addition, the chronic weakness of the dollar, which is characteristic for 70 years, turned into a sharp increase in its value by almost 2/3 from August 1980 until March 1985, under the influence of a number of factors.
The introduction of floating instead of fixed exchange rates in most countries (March 1973) did not provide their stability, despite the enormous costs of monetary intervention. The regime has been unable to provide a quick alignment of the balance of payments and inflation in the various countries, to do away with sudden capital flows, speculation on exchange, etc.
A number of countries continued to tie the national currency to other currencies: the dollar, the pound, etc., some have linked their courses to the “basket of currencies”, or SDRs.
One of the basic principles of the world, the Jamaican currency system was legally completed demonetization gold. Was abolished the gold parity, discontinued exchange dollars for gold.
The Jamaica agreement was finally abolished the gold parity of national currencies as units of SDR. Therefore, it was considered in the West as the official demonetization of gold, the withdrawal of any cash functions in the sphere of international traffic. It was the beginning of the actual displacement of the “yellow metal” of international monetary relations.
Formally, the Jamaican system still exists today, but in fact we can see the beginning of its end. Because it contains more systemic contradictions than in the Bretton woods, but is no longer gold that you can at least touch and count.