The Bretton Woods system, in the course of which the rules were established by which world finance actually operates today, was approved 75 years ago. Why has the US dollar become a world currency? How did events develop further? In what year did the dollar become a world currency? We deal in order.
Agenda
When the main results of the Second World War were summed up and realized, one of the main remaining questions was the following: what laws will further develop the global financial community, and especially taking into account the huge economic losses that many countries have faced. This agenda gathered 720 delegates from 44 states in 1944 in Bretton Woods (New Hampshire, United States).
Participants and motives
When the dollar became the world currency, the future of the United States and Great Britain made the decision in Bretton Woods - it was the representatives of these countries who put forward two key positions, one of which determined the global economy for decades to come.
The chairman of the conference was the American Minister of Finance G. Morgenthau. The delegation of Great Britain was headed by the well-known economist J. Keynes, the United States - Chairman of the Ministry of Finance G. White, China - Chiang Kai-shek, the Chairman of the Government, the USSR - Deputy Minister of the Soviet Union for Foreign Trade M. Stepanov.
The main reasons for holding the conference:
- chaos in the interwar economic system from 1918 to 1939;
- collapse of the gold standard (gold was the “form” of supranational money before the First World War);
- The Great Depression in the United States, a special customs policy, characterized by high duties on imported goods.
Could be a banker
The delegation of the United Kingdom proposed the introduction of a “banker” - a monetary unit that would stand above national currencies, and completely abandon gold. Representatives of the United States recommended using the dollar as the world currency, the issue of which the United States reserve system has been engaged in the issue of since the beginning of World War I.
A proposal was also made to create an International Monetary Fund to maintain stable exchange rates and ensure the balance of payments of individual states, and the International Bank for Reconstruction and Development to restore the economy destroyed by military operations.
The US position did not win because the delegation was convincing in its proposals. The reason was the power (in the political, economic and military aspects) of post-war America. The United States suffered less from hostilities, and the economy only won. In the basements of Ford Knox then was concentrated about 70% of gold reserves.
The role of the USSR
Why has the dollar become a world currency in a bipolar world? What was the role of the Soviet Union in the Bretton Woods system, which agreed to a variant of the financial structure of the world with the dominant role of the dollar? Obviously, the decision was made not by the head of the delegation Stepanov, but by I.V. Stalin himself. The leader understood that Washington would use the meeting to legally consolidate world domination.
Historians make several assumptions as to why, in such a situation, Stalin agreed to the participation of a delegation from the USSR in the conference. The dollar became world currency in a year before the war was over. It was expected that America would open the Western Front, the Lend-Lease program will continue, according to which weapons, food, equipment and other goods were supplied to the USSR. There was hope for US economic assistance after the war ended.
How has the dollar become a world currency? In short, international relations obliged the USSR to register in Bretton Woods, where the Soviets did not decide anything. The United States played a huge role. Therefore, it was the dollar that became the leading world unit.
Dollar Highlight
Under the new economic, exchange rates were pegged to the dollar, and the dollar to gold. A specific price was set for the precious metal: $ 35 per ounce. The national currencies of other countries became a commodity that received a specific value.
When the dollar became the world currency, an agreement on the creation of the IMF was signed and ratified by twenty-nine states, a couple of months later the fund began to carry out its tasks. The IBRD, which was later transformed into the World Bank, began operations in 1946.
Weak link
When the dollar became a world currency, critics immediately saw a weak spot in the new system. The established procedure could only function as long as the US gold fund ensured the conversion of foreign dollars into gold. With the increase in transaction volumes, the US gold reserve was melting before our eyes: sometimes three tons a day. In this regard, the exchange was limited: I can only carry out in the US Treasury. But all the same, from 1949 to 1970, Ford Knox reserves decreased from 21.8 to 9.8 thousand tons of gold.
Redistribution of gold
Charles de Gaulle - an opponent of dollar priority - has moved from criticizing the established system to real action. During his visit to the United States, he presented $ 750 million for gold. The US authorities were forced to exchange money because the formalities were followed.
Following France, huge sums were presented for exchange by Japan, Germany, Canada and other large countries. As a result of tremendous financial pressure, America unilaterally abandoned its international obligations to provide gold for the national currency.
By the beginning of the seventies there was an end to the redistribution of gold reserves in favor of Europe. Precious metal mining was clearly not ahead of the growth in international trade. The confidence of the world community in the dollar was falling, and the balance of payments deficit was growing. New economic centers have appeared in the world.
Dollar devaluation
When the dollar became the world's reserve currency, the United States could provide paper money with gold. But already in the early seventies, the US reserve system was forced to halve the gold content, that is, actually carry out devaluation. In the summer of 1971, the Nixon administration officially abolished gold conversion at a fixed rate. The fixed exchange rate is a thing of the past because it has not paid off. The Jamaican system was replaced by a free exchange of currencies and a floating rate.
Life after death
The key provisions of the system operate to this day. For example, the IMF and the World Bank are still the largest credit institutions, although their activities are increasingly criticized, especially intensified after the 2008 global crisis.
Dissatisfaction is caused by the fact that loans are issued on strict conditions requiring cost reduction, which hinders the development of crisis countries. The G7 countries still dominate in the IMF, although dynamically developing economies such as the BRICS countries are gaining weight in today's realities.
Despite criticism, the dollar has retained a key role and today is the main means of payment in international transactions. This allows the US authorities to introduce new dollars that are no longer backed by anything.
The dollar is losing ground
When the dollar became a world currency, the powers that be probably suspected that the system would only work successfully for about thirty years. Still, the Bretton Woods system was designed to breathe new life into the global economy, exhausted by the war. During the Bretton Woods system, world trade turnover increased almost fivefold, and at the end of the past century, experts call it the “golden age of a market economy”.
Modern analysts tend to consider the system a relic of the past. The structure of the economy over the past few decades has changed dramatically. Radically new financial instruments have appeared, and investors are now guided not only by the dollar. The functions of national banks and the conditions for the transfer of material capital from the economy of one country to another have undergone major changes.
Forecasts and Opinions
Most leading financial analysts agree that one currency can no longer dominate others. When the dollar became a world currency, the economy had almost the same problems as it does now. But at present, more and more transactions in the world market are conducted in other currencies.
Perhaps in the near future, the main positions will be occupied by the dollar, euro and yuan, or one artificial currency with global coverage (such as the continental euro) will be created. There is another opinion based on the fact that any unions will soon completely outlive themselves and disintegrate. As a result, each state will be for itself, and gold will take the place of the world currency. If the forecast turns out to be correct, then the world will return to the “Dobertton Woods” time.