In the first part of this cycle (available at this link) we discussed the history of Europe in the first half. Twentieth century. It is extremely important to understand at all why the euro was designed and done this way. Even during World War II, during a conference in Bretton Woods, efforts were made to create a kind of international currency, which was Bankor, behind which was economist John Maynard Keynes. However, the project failed. The dollar has become the global currency. Europe’s elites did not like it too much.
In 1944, the fate of the war was already decided. On the Eastern Front, Germany had previously suffered a devastating defeat at Stalingrad, and failed to seize the Transcaucasian oil fields. The final finish was the defeat at Kursk.
On the other hand, after the western part of the continent, the Allies opened a second front (i.e. they made Adolf Hitler’s worst nightmare come true – the fight on two fronts began). They first landed in Italy, and in June 1944 in France. The Third Reich was destroyed by two great armies: American-British (with the addition of other nations) and the USSR.
The US knew that war was a gigantic opportunity for them to put a stop on the “and” – to completely subordinate Europe. and at the same time finally get out of the crisis started in 1929. The country’s elites came up with an interesting idea. After all, one can “colonize” the world not only through the army, so far, but through the use of economy and culture. The key, however, was to make the dollar the main currency around the globe.
The effect of implementing the system developed at Bretton Woods was mainly that the world began to depend on American economic surpluses. They kept the circulation of dollars on the markets and were the oil for Bretton Woods. In practice, this meant that as long as the US sold a sufficient quantity of goods to Europe, the dollars that the power “distributed” as part of economic assistance (the Marshall Plan) returned to their country of origin. In other words, every American product (e.g. car) was sold to Europe for dollars. These then returned to the USA. The overall puzzle, however, strengthened Washington’s currency against the mark, franc or livr. It was simply needed to buy goods from America. To explain it even more clearly, it is worth adding that such almost unlimited demand for dollars meant that the Fed did not have to worry about the position of its currency. He had something in his hand that was always in demand.
Hey, but I prefer a Japanese watch!
From the US perspective, it looked like an ideal situation. More specifically: looking at it through the eyes of the ruling elite. However, the problem arose when it turned out that Americans began to buy more products from Europe and Japan. Why did this happen? It is possible that the US created two monsters themselves. Implemented plans to raise the economies of Germany and Japan meant that they quickly rebuilt after the war. This was necessary as a counterweight to the USSR and China. Added to this were some cultural advantages of both nations: attention to detail and diligence. Finally, German and Japanese products were often found to be better in terms of technology.
In any case, this was a problem for the US, because trade was shaken. The American surplus was turning into a deficit – Americans were now buying more from others than they were selling to them. This caused too many dollars to appear on the US market, which led to inflation.
In the 1960s, the amount of dollars in circulation already exceeded the gold reserves the Fed had. In practice, this meant that if the European countries began to demand for their bullion bullion in exchange for their dollars – which was legal as per Bretton Woods’ decision – the US gold would begin to melt rapidly.
To keep order with Bretton Woods, the US had to put pressure on European central banks to work with the Fed. It included for additional currencies to buy surplus dollars for them. Otherwise – in the era of disturbed trade – the whole system would collapse.
Sand thrown in spokes
In 1961, the shield was raised high by the Bundesbank. He decided that he would no longer print brands and adjust the exchange rate to the needs of the USA. First, as the German elite recognized, it threatened inflation and a blow to domestic exporters.
In a similar period, it also smelled of rebellion in France and Italy. It was not even about dollars, but the fact that the appearing Germany led to the fact that not only the United States received the blows, but also the French and Italians. You probably understand: the system was built for the so-called good weather and so that it works when everyone works together. While in 1944 the US elite could believe that it would be like that – they were the dealt cards – after two decades, Europeans began to get fed up with American domination.
Added to this was the politics of France, specifically Charles DeGaulle, the then prime minister of the country and a hero from World War II. He decided to throw the US gauntlet and began buying US gold at USD 35 per ounce. It would be a fair price in 1944, but as early as the 1960s, when it was known that the Fed had less gold than it actually circulated in dollars, the price for one ounce should be higher. So the French hit the Fed. And it’s hard!
Great Britain also had no reason to be happy. For good, it lost its position as a powerhouse, and France also hindered its entry into European markets, which DeGaulle wanted to show clearly to the US that it would not allow free American satellite policy in the Old World.
Washington had had enough of this, however. He decided to throw this all rebellious company overboard.
“I instructed the secretary of the treasury to take all necessary measures to defend the dollar against speculators. I ordered Secretary Connally to temporarily suspend the convertibility of the dollar to gold. “
– President Richard Nixon announced on TV. It was August 15, 1971. The Bretton Woods system has collapsed. The “temporary” suspension proved permanent.
But why did the US president do it? He did not seem to be purely irritated by the actions of European politicians? No, it included for threats from European banks that threatened to exchange a significant portion of their dollars’ stocks for gold. Then the door handle collapsed. Nixon has completely abandoned the bullion. The dollar became an empty currency for the first time – it was no longer covered in anything. Only in the faith of the world that it is worth something, because it is behind it the Fed and a powerful economy (and – as the more cynical add – an equally dangerous army). In essence, however, it was a piece of paper. Fiat currencies were to become the standard.
As you can see, the Bretton Woods system may have been an interesting solution, but only for a period when one power dominated in the Western world …