A bureaucratic agenda on paper and institutions
In the face of the end of World War II, countries were berated and damaged in a self-inflicting dogma of conflicts that raged for more than a decade. Peace was now attained; albeit massive human casualties; the holocaust and war-torn countries. The situation begs the question: a constructive system to rebuild the façade that was presented on the world stage, either by economic and political reforms.
It lied on the hands of the United States, vindicated upon the massive reconstruction of the economy in the West and to administer the regrowth of the West in multiple faceted agencies. The Bretton Woods system was introduced.
A solemn set of agreements was signed by 44 allied states at the Bretton Woods Conference in 1944, amidst the nearing unfoldment of the end of World War II. The agreements were put in place in 1945 and a primitive system of 3 international financial institutions was established. The International Monetary Fund; International Bank of Reconstruction and Development; General Agreements on Tariffs and Trade; which provided wealth assistance to war-torn and developing countries and the world’s economy.
“The various currencies, which were all maintained on a stable basis in relation to gold and to one another, facilitated the easy flow of capital and of trade to an extent the full value of which we only realize now, when we are deprived of its advantages.”, J.M. Keynes.
The United States were held accounted to half of the world’s economy following the end of World War II. Its dominance in the global economy, coupled with a strong currency led to the gold standard. All countries’ currencies were set at a fixed value of the U.S. dollar, and the preposition of dollar-gold standard of 35 U.S. dollar to one ounce of gold. The confidence of using a fixed value of the U.S. dollar reinforced the stability of the U.S. financial system, as well as its tight grasp of a hegemonic position on the world economy. The monetary duty of the IMF was to monitor the U.S. currency regime, to allow fluidity and transparency of its functions.
The severely impaired Western economies, in particular Europe, were in need of capital to rebuild its infrastructure. IBRD was headed by the U.S., as the hegemony of the world’s economy bore the costs of its operations, along with IMF to constitute its stability in the world economy.
As countries recovered and grew in military and economic power, the Bretton Woods system was abolished by U.S. President Richard Nixon as the U.S. deemed it unsustainable following a chain of events that altered the confidence in the U.S. currency. The opportunistic behaviour in exploiting the gold standard was resort to as a monetary safe haven for countries that no longer trusted the U.S. currency. The Nixon shock: the inception of a regime based on free-floating currencies; U.S. reacted and proposed a series of protectionist policies, and were implemented imposing increased tariffs on trades and businesses, as U.S. hegemony in the world economy was compromised.
The Bretton Woods system was a tool for the U.S. to bolster its hegemony in the world’s economy, much like an official procurement, but it was undeniable that the U.S. was the strongest economy during the 1950s and 1960s. However, its hegemony began to wane down in the 1970s; the Bretton Woods system was ineffective and hence abolished. The growing competitiveness amongst countries in the 1970s, of comparable businesses and labour market in the world of free trade, undermined the U.S. dominant position in the global economy.
In a relatively identical predicament: one of the first tasks of President-elect Donald Trump is the eventual dissolve of the TPP, which signals the shift of U.S. economic power in the global economy. Far and above, the imperative notion of U.S. present position in the world economy begs the question: the fall of globalisation, and the return of mercantilism is the foci of U.S.’s economic contingency.