G-20 Summit:A look back to Bretton Woods
Here in Washington, DC, we are preparing for the G-20 summit, the largest gathering of foreign leaders in this own since the 50th anniversary of NATO in 1999. The event has been billed as a latter-day Bretton Woods, a forum to reform the global financial system and restore confidence. Therefore, it is fitting to look back at Bretton Woods to remember what was accomplished there in 1944.
Below is an article by Larry Elliott from today’s Guardian newspaper remembering Bretton Woods. Enjoy.
It was just 10 days after the D-Day landings in Normandy that John Maynard Keynes set sail across the Atlantic for the conference that was to shape the economic order of the postwar world. It took seven days on the Queen Mary for the British delegation to reach New York rather than the seven hours it took Gordon Brown yesterday. But the goal was similar: to reconstruct an international financial system battered by crisis.
This weekend diplomats from 20 industrialised and developing nations will get together in Washington for what has been dubbed Bretton Woods II – the name taken from the meeting in New Hampshire 64 years ago that created the World Bank, the IMF, and the system of fixed exchange rates that underpinned the rapid expansion after the second world war.
The original Bretton Woods was a more leisurely affair than the conference this weekend.
Keynes and his counterpart at the U.S. treasury had been beavering away on blueprints that would help reconstruct postwar Europe and avoid the policy mistakes that led to the 1930s Depression. Delegates from 44 nations attended the opening of the conference on July 1 1944, and pre-communist China and pre-independence India were represented. The US, as top industrial power, was the host, and Keynes, for all his eloquence, fought an uphill battle to stop it riding roughshod over everyone else.
In 1944 the route for avoiding the mass unemployment the 1930s had seen was a form of the gold standard. Currencies were pegged against the dollar, and could fluctuate by 1% either side of a set parity. The U.S. currency could be exchanged for gold.
Britain and the U.S. had differing ideas on how to correct trade imbalances. Either the creditor nation (then the US) could adjust by increasing imports from the debtor nation, or the debtor nation could shrink its economy to balance its current account. Keynes, representing a country virtually broke by then, argued for the former; Harry Dexter White insisted debtor nations take the strain. The US, with 50% of global GDP, won.
The Bretton Woods system survived for about 30 years but started to crack in the late 1960s, with the cost of the Vietnam war and U.S. welfare reforms. The U.S. started to export higher inflation to the rest of the world. Faced with drained gold reserves, Richard Nixon, in 1971, suspended Bretton.
Ironically, Bretton Woods II sees the U.S. now as the world’s leading debtor. Washington of late has seen the merit in countries such as China and Germany taking the strain of global adjustment. But whether China will be any more amenable to that than the U.S. was in 1944 remains to be seen. It will take, anyway, more than a weekend for Bretton Woods II to emerge. And Beijing will have a far bigger say than it did in 1944.
Shaping the world: Bretton Woods 1944– Guardian
A New World Order