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September 22, 2020
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Money has been wasted in the past on the world. Part 13. The end of Bretton Woods – Blocksats

We are coming back to our cycle of money spoiling over the centuries. We ended the previous part when the US became a global empire. This was possible thanks to the dollar and the post-war monetary system. However, nothing lasts forever and more problems began to appear relatively quickly.

Cold War

First, let’s describe the background of events that took place after World War II. After 1945, the world ceased to be multipolar. While before the global conflict it could be said that there were several powers in the world, after the Third Reich and Japan were finally defeated, everything changed.

Anyway, the actually defeated countries were also Great Britain and France, which only officially sat at the table with the “winning” badge. The United Kingdom said goodbye to the statute of the power. They were in debt and lost their colonies. Just like France, which lost its war in 1940 militarily.

Germany? The Third Reich collapsed with the suicidal death of Adolf Hitler. The state was divided into four occupation zones, finally a team of two – West Germany and pro-Soviet GDR.

Thus, we reach the Soviet Union. Although Stalin and his associates started the war on the German side, they were already – in a literal sense – in 1941 on the other side of the front. However, the Soviets did not stop there. After signing the peace agreements, they changed their policy to anti-Western. In Stalin’s plans, Europe and the rest of the world were to become a real chessboard. The US was to fight for particular fields of the USSR. The world has become for several decades – of course, slightly simplifying the picture – bipolar.

The Cold War did not actually remain “cold” either. Over the years, there has been “hot” rivalry, for example in Korea or Vietnam. Wars and verbal declarations by politicians have aroused the greatest emotions today. Something, however, probably more important for the Smiths or Kowalski life has always happened in the field of economy and monetary policy.

Bretton Woods and his breakup

You can read about the Bretton Woods system here. We also wrote more about him in the previous part. There is no point in repeating this for the purposes of this text. It is important, however, that this system, which de facto cemented the power of the US, began to collapse. How did this happen?

The effect of Bretton Woods was that masses of dollars flowed into Europe. These, in turn, destabilized local currencies. However, as early as the 1950s, governments in some European countries began to focus on building their hard currencies. This posed a threat to the US. The growing productivity of the Old World and Japan led to a payment deficit of the American empire. In the 1950s and 1960s, inflation began to hit the US as well.

As if that wasn’t enough, it was created in Europe Unit countries that rebelled against the Bretton Woods regime. He was led by France, which began to exercise the right to exchange dollars for gold at a rate of USD 35 per ounce of gold. The US reserves shrank from USD 20 billion to USD 9 billion.

In 1967, the International Monetary Fund, during a conference in Rio de Janeiro, decided to create its own unit of account – SDR (Special Drawing Right). In Western Europe, talk began to be open about the need for a monetary union. In other words, things began to slip out of the hands of the Americans.

Two years later, there was a solstice in the gold market, which translated into currency devaluation. In 1971, after an unsuccessful attempt to combat inflation, the White House suspended the convertibility of the dollar to gold. Anyway, US inventories covered only 19 percent. US commitments. In December, the dollar was officially devalued.

The Bretton Woods system was replaced by a Smithsonian system. It extended the range of tolerance of exchange rate fluctuations from 1 to 2.25 percent.

Another thing is that freeing the exchange rates and detaching the dollar from gold valuation has led to problems that we have had for many years. The breakup of Bretton Woods also proved to be a detonator of the oil crises of the 1970s.


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