The Bretton Woods Agreement was a landmark piece of financial legislation passed in the fallout of WWII. Then a new world order was created around the strength of the USD and the short-term gains of a debt-based economy. Although doomed to failure, it did allow American interests to take center stage in a new, globalized financial system.
The Bretton Woods Agreement
The Bretton Woods Agreement was developed in 1944 when delegates from 44 countries came together to discuss how competitive devaluation could be discouraged in favor of stable economic growth. Harry Dexter White was the chief international economist for the Treasury Department. He spearheaded a plan that included the creation of:
• The International Monetary Fund (IMF) – Tasked with monitoring exchange rates and lending reserve currencies to nations in need of a boost.
• The World Bank – Designed to offer reasonable loans to countries looking to rebuild after WWII.
• The US dollar as the global currency. Nations would now redeem their money in US dollars rather than gold. From this point onward, the USD became most sought-after currency in global markets.
• A fixed exchange rate system. Member countries agreed to maintain fixed exchange rates between the US dollar (in reserve) and their currency. It was intended to prevent devaluation wars that only brought inflation and instability. Operating on a fixed exchange rate meant countries promised to buy up their money in foreign markets when the value became too weak.
WWII and the Destruction of the Gold Standard
From a monetary perspective, the period between 1920 and 1944 was defined by migration away from the gold standard. Countries needed to print money to fund military efforts, which they did without considering the long-term consequences.
The shift away from a fixed gold standard in the 1910s produced WWI and hyperinflation across most of Europe. An increase in the supply of money submerged demand and lead to a general devaluation of domestic currency – no more evident than in Germany in the early 1920s.
After WWII, the situation had only gotten worse. Most European countries were in severe debt and needed a way out. It became clear that the rigid structure of the gold standard did not offer them enough flexibility in navigating through tough economic situations. It was part of the justification for a new system. Under the Bretton Woods Agreement, nations had the flexibility of trading in US dollars, which acted as a loose standard for countries to compare.
The IMF and American Hegemony
If the US dollar was the skeleton of the Bretton Woods Plan, the IMF acted as the backbone. Countries needed access to a quasi-central bank that could bail them out when their currency began to spiral downwards, and the IMF provided such a resource. If nations could not borrow from the IMF, they would have to hike interest rates or implement trade barriers – just the kind of destabilizing behavior global leaders wanted to avoid. Borrowing from the IMF seemed like a better alternative, though it did lock many countries into strict debt repayment plans they could never meet.
The Bretton Woods Agreement undermined the lively hoods of the American worker and the economies of third world countries
The Bretton Woods agreement was in part created to prevent the rise of another Nazi Germany as happened after WWI. But it also stunted the growth of the rest of the world and unintentionally put a stray jacket on the American worker. The dominance of the American dollar after becoming the default currency in trade as an alternative to gold reserves meant that debts made in dollars to third world countries dominate those economies. These dollar-based debts prevent those economies from maturing just like the Bretton Woods Agreement had originally intended. Germany and Japan had the intellectually capacity after WWII to start making cars for the American economy which allowed them to eventually pay off their dollar debts and war reparations, however they had to give up almost all military and self-defense expenditures to do so. But, for most of Africa, South America and Asia their economies were not in a position to do the same and so they have been constrained economically to a miserable existence.
The American middle-class and working class has also been severely undermined by the Bretton Woods and new global order. The American Dollar dominance has made work done by American’s very expensive and uncompetitive. Today, America’s national debt is the main tool used by foreign nations to prop up the American dollar, again making the American worker uncompetitive.
Understanding how international economics works is critical to understanding why trade war is not the issue, it’s the government’s willingness to add to our national debt for the sake of lower tax rates for the wealthy. The lives of the middle and working class have been additionally exacerbated by the continued rise in the cost of living caused by FIAT monetary policy which has allowed for unlimited mortgaging of homes raising the cost of housing.
The combined lethality of British Colonialism and Bretton Woods has created an ongoing massacre
Millions of children and people die every year because of the Bretton Woods Agreement. It effectively made all economies debt based. This means that in order to print money to service a debt, you need an asset to borrow against. Britain Colonized and exported all the valuable assets back to England of most third world countries around the world, all but one country on the continent of Africa. After Bretton Woods these countries were offered loans in American Dollars to ‘start’ there economies but it did just the opposite. After spending the initial loan on some American contractors or service, they were left with debt payments. England had already taken everything of value, so they could not print money since there was no asset to borrow against. If the government printed money and just spent it they were met with hyperinflation like Zimbabwe, Argentina and Venezuela. In order to stop hyperinflation, countries can borrow more money from the IMF which only locks them even further into oppression. In essence, these countries are oppressed, and their people are literally dying by the millions every year.
Official Bretton Woods policy lasted until 1973 when President Nixon de-linked the value of USD to the price of gold. Despite moving to a floating system, the IMF remains an essential player in global fiscal policy. By extending loans to dysfunctional nations, the IMF is successfully spreading the claws of American business interests into foreign economies through the one-size-fits-all system we know best: deficit spending. Albeit, there must be a better way to raise the material well-being of global nations than to plunge them into debt like America is.