telegraph | In early July 1944, delegates from 44 countries gathered at the Mount
Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took
place, at which a new system was agreed to regulate the international
monetary and financial order after the Second World War.
The US was already the world’s commercial powerhouse, having eclipsed the
British Empire several decades earlier. America was also on course to be
among the victors of “Europe’s conflict”, even though its economy was
largely unscathed by war. As such, Bretton Woods was US-dominated and
produced a settlement largely on US terms.
Seventy years ago this week, that fateful summit ended. Its close marked the
moment the dollar’s unquestionable supremacy was secured. Since then, global
commerce has been conducted largely in dollars and leading economies have
held the greenback as their primary reserve currency.
The same system remains intact today, with the lion’s share of commercial
settlements worldwide still clearing the US banking system – even if the
parties involved have nothing to do with the States.
The dollar’s hegemony continues to be cemented, meanwhile, by the operations
of the International Monetary Fund and World Bank. Founded at Bretton Woods,
they’re both Washington based, of course, and controlled by America, despite
some Francophone window-dressing.
The advantages this system bestows on the US are enormous. “Reserve currency status” generates huge demand for dollars from governments and companies around the world, as they’re needed for reserves and trade. This has allowed successive American administrations to spend far more, year-in year-out, than is raised in tax and export revenue.
By the early Seventies, US economic dominance was so assured that even after President Nixon reneged on the dollar’s previously unshakeable convertibility into gold, amounting to a massive default, dollar demand kept growing.
So America doesn’t worry about balance of payments crises, as it can pay for imports in dollars the Federal Reserve can just print. And Washington keeps spending willy-nilly, as the world buys ever more Treasuries on the strength of regulatory imperative and the vast liquidity and size of the market for US sovereign debt.
It is this “exorbitant privilege” – as French statesman Valéry Giscard d’Estaing once sourly observed – that has been the bedrock of America’s post-war hegemony. It is the status of the dollar, above all, that’s allowed Washington to get its way, putting the financial squeeze on recalcitrant countries via the IMF while funding foreign wars. To understand politics and power it pays to follow the money. And for the past 70 years, the dollar has ruled the roost.
The advantages this system bestows on the US are enormous. “Reserve currency status” generates huge demand for dollars from governments and companies around the world, as they’re needed for reserves and trade. This has allowed successive American administrations to spend far more, year-in year-out, than is raised in tax and export revenue.
By the early Seventies, US economic dominance was so assured that even after President Nixon reneged on the dollar’s previously unshakeable convertibility into gold, amounting to a massive default, dollar demand kept growing.
So America doesn’t worry about balance of payments crises, as it can pay for imports in dollars the Federal Reserve can just print. And Washington keeps spending willy-nilly, as the world buys ever more Treasuries on the strength of regulatory imperative and the vast liquidity and size of the market for US sovereign debt.
It is this “exorbitant privilege” – as French statesman Valéry Giscard d’Estaing once sourly observed – that has been the bedrock of America’s post-war hegemony. It is the status of the dollar, above all, that’s allowed Washington to get its way, putting the financial squeeze on recalcitrant countries via the IMF while funding foreign wars. To understand politics and power it pays to follow the money. And for the past 70 years, the dollar has ruled the roost.
0 comments:
Post a Comment