Transcription
Hello everyone, delighted to find you again. What then happened at Bretton Woods in 1944? Why has what is called an international monetary system remained in our memories? Why did it play such an important role in post-war growth? Let's travel together to the heart of this system, to the heart of currencies, to the heart of exchange rates, because behind all this lies the history of nations, of power balances, of strength, and also of peace, of stability.
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In the international monetary system, what is it? What does a system mean? It means something organized with two main concerns. The first is to provide liquidity for the payments that will take place in the world when goods are bought between different nations, when capital circulates from one country to another. So, it is necessary to imagine a system that can make these exchanges possible and thus the liquidity that accompanies them. But there must also be another objective, called an adjustment objective. This means that those who will participate in a system, that is to say, a more or less formalized monetary agreement, must have all sorts of disciplines to resolve imbalances. Imbalances like what, for example? That some have too large trade surpluses and others equally large trade deficits. If these two functions are fulfilled, then one can perhaps hope for something satisfactory for everyone.
So, what happened at Bretton Woods in '44? First of all, I believe that before going into the details of this story, we must debunk certain myths. The first: Bretton Woods, '44 to '71. We could say, after all, almost thirty years, if we go up to '76. Yes, more than 30 years in reality. And we will see together that the duration of the Bretton Woods system, where it actually functioned, was only about ten years, between 1958 and 1968. That's where we will see that this system more or less held up. After that, it will falter, even from the beginning of the 60s, it falters. Second thing: one gets the impression that when this system took place, there were two theses that clashed between two essential figures: Keynes on one side, a great British economist born in 1883 and died in 1946, and the American representative Harry Dexter White. And that at the end of these negotiations in the summer, it was White's thesis that prevailed over Keynes' thesis. We will see together that when the delegations arrived at Bretton Woods, the essential part of the matter had already been settled since 1942 in intense negotiations between the United States and England, which means that Bretton Woods will be a kind of compromise between the two theses, even if history wanted to remember more the victory of White over Keynes.
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So why is it so important after the Second World War? Even, let's say, while the war is not yet over. I remind you, it's the summer of '44. The Americans landed in Europe in June, so a month before. So the outcome of the war is not entirely assured. But why does it seem important to already think about the post-war monetary situation? Because when we talk about money, if we think that talking about money is only talking about an exchange instrument to buy goods, we understand nothing about the nature of money. Money is not just an intermediary, it's not just an instrument. Money is a matter of power, it is a matter of sovereignty, it is a matter of hegemony. So, the aim was to create a system that, through monetary peace, could guarantee not only payments but also peace. That's why Bretton Woods is less a technical and complex system that lasted thirty years, than a spirit, a spirit turned towards better harmony among nations. Bretton Woods is also something else that had to be overcome compared to the past. What were the international monetary systems before the birth of Bretton Woods? There was what was called the gold standard from 1870 to 1914, when gold definitively triumphed over silver, and we were in a system called monometallic. This system, which in practice was a sterling system, because, as I told you, money expresses power, domination. The gold standard was in reality guaranteed by British power, and in reality, it was more a system centered around the pound sterling.
Then, after the First World War, there was a system that tried, as best it could, to bring back the gold standard system from before 1914. But this system was not a complete return to the one from before 1914. What was called the Gold Exchange Standard, born in 1922 in Genoa, was a system where there was a reference to gold and a set of reference currencies called gold anchor currencies. These systems had flaws. This apparent stability of gold had to be accompanied by flexibility that had to be recovered elsewhere, since the concern of these systems was the stability of gold, to fight inflation, even if after the First World War inflation returned due to the war. But if this stability was desired, it came at a very high price: what is called a form of wage deflation, meaning that the system, to live by the gold standard or the post-war one, had to translate into downward pressure on wages. So, in this system, it was the exchange rate position, that is, the value of the currency against gold, that had to take precedence over internal objectives. And what were the internal objectives that would haunt and obsess Keynes? It was growth and full employment. It was necessary to maintain at the same time a certain price stability, growth, full employment, to ensure that there were no too significant external imbalances. But it was especially important not to forget demand. That's why this system, which was to be born after the war, had to be a system that cared about peace, put an end to non-cooperative competitive devaluations that would push nations to confront each other, and that cared about ensuring that domestic demand was not compromised in the name of external imperatives, such as maintaining a certain parity between gold and a currency.
And that's where we need to debunk the idea that our American representatives, White, and the British representative, Keynes, were opposed because White, like Keynes, agreed on what I just said. He did not want a deflationary currency, he did not want currencies to clash. He also wanted to have these concerns that internal and external objectives be met together. Where they diverged was on how to envisage the stabilization of the system, its organization. So, before looking at the vicissitudes of Bretton Woods, let's look together at what separated the White plan from the Keynes plan. Keynes, fragile in health, had a first cardiac alert during the negotiations, so an intense conference.
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How to imagine a lasting system? Either you choose, when you operate in an international monetary system, a reference standard, for example, gold. Or you can choose currencies that will be the reference currencies, called a key currency, which in a way will be as good as gold and will represent the reference, like a standard of reference. That's where a small problem arises, which must be kept in mind and which Keynes had in mind: what is called the misfortune of the key currency. The currency, the pound sterling at the time of the gold standard, the pound sterling again, the franc and the mark in the interwar period, which were indeed these gold anchor currencies. Why misfortune? Because the currency of a country must become an international currency, and what is a good international currency? It's a currency that is both good for the country that issues it and good for its partners who use it. So, we find ourselves in a terrible tension, because at some point it might be good for the country that issues it but not good for others. And how to reconcile the concern for national interest with the concern for the rest of the world? The one who was fully aware of all this was Keynes. And in his plan, which will oppose him, at least in its technical, philosophical part, to White, lies the main opposition. Keynes believes that it is necessary to create a currency from scratch, which would essentially only be used for high-level international transactions, i.e., for exchanges of goods or services, but which could not be used otherwise than in those circumstances. This currency, he says, must be ensured. He gives it a specific name: he calls it bancor. A currency created from scratch, and each nation would have, in a way, gold banks attributed to it based on its share in world trade. And to ensure that those who have surplus gold banks do not end up with currencies that they could, for example, convert into gold and find themselves in this logic of wanting to accumulate surpluses at the expense of others. Because the worst thing is to make this gold bank an instrument of domination of one country over another. So, the settlement instrument must be detached from any national currency. And even more so, this is Keynes' originality: to ensure that it is the surplus countries that make the effort for the deficit countries. That is to say, in short, when you have gold banks, you don't put them aside, you don't make a war chest. You will spend them to buy goods from those who are in trade deficit, thus showing your solidarity with the most vulnerable.
Why does Keynes want this? Because he says, if we don't do this, how will we make the deficit adjustments? Well, there aren't 36 ways. Our imports depend on our domestic demand. Our exports depend on foreign demand. In other words, national income increases, our imports can rise. Foreign income increases, our exports can increase. So, he says, if the effort belongs to those who are in deficit, how will they restore their situation? They risk compressing their demand to have fewer imports, and if they have fewer imports, that creates a deflationary logic, meaning it compresses income. If it compresses income, it impoverishes the nation. And Keynes, like me, does not want to return to the deflationary logic of the past, does not want demand to be crushed. So, will Keynes say, the effort will not come from the deficit countries, it will come from the surplus countries. And when they have gold banks, they will buy the goods of those who are in deficit and not use these gold banks for anything else. And that's the interest of Keynes: to sort of escape the misfortune of the key currency. But I told you, money is a matter of power, it is a matter of domination, it is a matter of hegemony. And who is the big winner nation of the war? It is the United States of America. And so, even if White agrees on the overall objective, White still wants to ensure that the dollar is the currency of the United States, which it already is, and the currency of the world, which in fact it already is, given the importance of American power, given the role the United States played in the Second World War. How can one be naive? And he knows very well that a monetary system is fragile. He wants to accompany this system with stabilization institutions: the International Monetary Fund, which will be mobilized if necessary to lend to states in situations of imbalance, let's say transitional or exceptional. Also, the World Bank, called the International Bank for Reconstruction and Development, which before seeing its missions change in the 70s-80s, will also participate in this logic of stabilizing the system with loans if necessary. Added to this, and we will find it in the final Bretton Woods agreement, is the fact that currencies can experience a certain variation of plus or minus 1%. This ensures that we are in a fixed exchange rate system, but one that can have some flexibility. On the other hand, to ensure that this system functions correctly, capital freedom is relative or restricted, because otherwise the system could see capital movements threaten the entire architecture. So, we see clearly that in this system, we do not escape the logic of the key currency. This system will gradually emerge, but quite slowly, since the whole world does not yet have the necessary liquidity to participate in this system.
The United States must intervene to ensure that there is the necessary liquidity in the system. So, how will they do it? Obviously, one of the means for the United States to do this is the Marshall Plan, because the Marshall Plan will provide liquidity to European nations to rebuild themselves, to reconstruct themselves. And the Marshall Plan is obviously aid in exchange for American products, it must be understood that here again, the hegemonic logic plays. The United States offers its contribution, but within this contribution, if I may say so, there are also American products that must have a privileged place. On the other hand, the European countries themselves will organize themselves to try to face this situation of dollar shortage. This will be the first European attempt to create something like a monetary rapprochement between European nations. This is called the European Payments Union, which will try to provide European states with this dollar shortage. Because let's not forget that the beginning of Bretton Woods is characterized by what was called the dollar gap, that is, the dollar gap, the dollar shortage. We already see a problem emerging that the Belgian-American economist Robert Triffin will highlight in the 1960s and which will tear Bretton Woods apart until its collapse. This is what is called the Triffin paradox. Robert Triffin, in the early 60s, will explain the misfortune that will befall Bretton Woods until its disappearance, which is the misfortune, as I said at the beginning, of the key currency. A key currency is the dollar in relation to gold, which also gives security to the dollar and gives it its stability, the fact that it rests on a certain quantity of gold. But this is only the starting point. As we saw at the beginning, the international monetary system must ensure a liquidity function. To do this, the United States must offer the world the necessary quantity of dollars for the system to function. Immediately, this means that the United States must circulate dollars, and through what channel? A channel, for example, commercial, meaning increasing imports so that by increasing their imports, the number of dollars in circulation in the world increases. What happens at the same time? We witness an increasingly uncontrolled creation of dollars in the world linked to various economic phenomena. So, what fuels confidence is the supply, I said, of dollars. But the more dollars circulate, the more paradoxically confidence will be undermined, because as there will be more and more dollars compared to gold reserves, which was normally the condition for confidence, i.e., the supply of this liquidity, paradoxically becomes the element that threatens the system. Because the United States continues to supply these dollars to the world, but disproportionately to the reserves they have, thus undermining confidence in their own system. This has the consequence that the nations participating in the Bretton Woods system will want only one thing: to convert their dollar holdings into gold. The significant needs of a strong currency paradoxically lead to the weakening of...
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At the beginning, I told you, the whole issue of an international currency, when it is linked to a national currency like the dollar, is to ensure that the national currency is as good for the country as it is for others. Well, little by little, what will the Americans do? They will imagine, when the system starts to falter, solutions where they will mobilize their allies, who will serve as a cordon sanitaire to save Bretton Woods, until the moment when they can no longer mobilize them to save the system they have fathered. What will they do? Well, they will let it go. And that's what's quite interesting, because in the end, what will we see? What will be good for the United States will no longer be good for others. So, what happens in the 60s that will gradually lead to the loss of this system? First, there is an economic event that changes the game. Let's not forget that from the end of the war until the 1950s, the United States were the world's exporters, they had trade surpluses, and other nations were in full reconstruction. What happens towards the end of the 50s, early 60s? Two miracles take place: the Italian miracle, which occurs in its most dynamic phase from 1958 to 1963, and obviously the German miracle over a similar period. France, after having experienced its reconstruction phase between '47 and '52, also embarks on an economic dynamic in the peace of the "Trente Glorieuses" (Thirty Glorious Years). So, the world order is gradually changing. The United States are becoming less of an exporting power, starting to be in a deteriorating situation compared to the rest of the world. And there, they will gradually engage in an increasingly deficitary logic. This will lead to too many dollars circulating in the system. On the other hand, what else is happening at the time? The United States are undertaking increasingly large public expenditures and have increasing deficits due to a geopolitical, military adventure, which is the Vietnam War, which accelerates after the Tonkin incident in 1964, where the United States send a maximum of 550,000 GIs to Vietnam. All this costs extremely dearly, but the United States allow themselves all this because, as Valéry Giscard d'Estaing said at the time, they benefit from what is called the exorbitant privilege of the dollar and deficits, as Rueff and Sampler said. That is to say, 1) the United States, as it is the world's currency, does not need to fight to maintain its parity with gold. 2) It can, since deficits are denominated in its own currency, not find itself in a situation of debt towards the outside. So, it can afford all sorts of leniencies that the rest of the world cannot afford, which increasingly shows the development of a less and less cooperative system. What else is happening? Capital circulation. Capital is gradually regaining a bit more movement and freedom in the 60s than before. And this situation, this landscape, was made even more complicated by the development of a phenomenon called the Eurodollar. The Eurodollar will represent all these dollars circulating outside the United States and present in the world, and which, among other things, feeds the Eurodollars. It may seem strange, but it is the Soviet Union itself, skillfully. The Russians indeed place capital in England, and place capital that is in dollars, and which will feed what is called the Eurodollar. So, indeed, there are Eurodollars coming from the East. So, more and more dollars are circulating, and the United States see their economic position eroding. We see Europeans moving more and more towards an economic dynamic, not to mention that American multinational firms, transnational corporations, to circumvent European protectionist barriers, are increasingly setting up in Europe. These are called "tariff jumping" multinationals, jumping over tariffs to bypass them. So, we see an economic and geopolitical landscape that is changing in the 60s, which is no longer at all that of a time of scarce dollars.
So, what do the United States do? Since from the 1960s onwards, the first crises begin, a crisis on the British pound. The French, with General de Gaulle, also demand the conversion of part of their dollars into gold. We see a series of crises that will shake this system. So, the Americans say, "Well, we'll try to imagine solutions to make the system survive, because if at some point there are too many dollars compared to the amount of gold, the system is dead." So, the United States will try to imagine all sorts of formulas that will mobilize their allies to save the system. There will be the "bancor," there will be Special Drawing Rights, all sorts of technical and very political formulas behind them that will try to give new life to this system that is progressively failing, until the moment when the United States realize that all the formulas they invent cannot save Bretton Woods. They understand that it is time to get rid of this system, and that the American currency will become good only for itself, if I may say so, and no longer good for others. And a member of the American government, James Connally, made this famous phrase in history: "The dollar is our currency, and it's your problem." And there is the rupture, and the misfortune of the key currency is perfectly summarized here. What was good for the United States was no longer good for others. So, the misfortune of the key currency returned. As long as American hegemony was indisputable, as long as dollars were scarce, this system could paradoxically function. From the moment there were too many dollars, from the moment American hegemony was shaken, we were in a crisis of sovereignty. The United States got bogged down in Vietnam. The United States gradually lost their dominant position. Other powers, and European powers, returned. The solar system, and so the United States found, let's say, their monetary instruments for themselves. Faced with this first disorder, in the summer of '71, when Nixon announced the suspension of convertibility between gold and the dollar, the world's reaction is diverse. Europeans remain, and will remain to this day, attached to the fixed exchange rate system and will want to maintain a neighboring system at all costs. They will try to create in '72 what is called the monetary snake, that is, without leaving Bretton Woods, but trying to maintain something fixed within the Bretton Woods system. In '73, the different powers meet, and a new agreement, the Smithsonian Agreement, which aims to make the system a little more flexible. It's no longer plus or minus 1%, it will be plus or minus 2.25%. So, currencies have the right to float between a ceiling and a floor. When the ceiling is breached, the floor is breached, central banks must intervene to bring these currencies back between the ceiling and the floor. So, they try to give a little more flexibility to the Bretton Woods system to ensure that it continues to exist, even if the reference to gold is tarnished and the anchor to the dollar remains, but the anchor to gold ceases. These different means are not enough until the moment when the burial of Bretton Woods is done with great pomp in January '76 in Jamaica, at the Kingston Conference, which officially marks the death of this system. And in fact, when this system dies, it is the pillars of the post-war era that will gradually give way. And one of its pillars was that of the relative control of capital. And from the moment capital acquires more strength than it had in the 60s and 70s, it is, in a way, the starting signal for the second globalization, based on financialization. Something else that was part of Bretton Woods, which will give way due to its collapse, is that the concern to reconcile the internal and the external will once again break. It is the external constraint that will have to impose itself on internal objectives, or the defense of the exchange rate, especially in the European case, will become increasingly important, even more so than the issue of full employment. In fact, Bretton Woods is a spirit, it was a desire for cooperation. These are pillars that characterized this post-war growth that went beyond money itself. It is a world that wanted growth and full employment as its objective, that wanted to control finance. This is what the Americans called the years of financial repression. And when Bretton Woods, with all its flaws, erodes, it is the pillars of post-war world organization that will in turn disappear, opening the phase to what was called the neoliberal cycle, opening the phase of the second globalization, which is in reality a financialization with monetary disorders and unprecedented monetary instability. This has led some, indeed, to nostalgia for Bretton Woods, because if Bretton Woods had not happened, the GATT, the instrument that allowed the progressive opening of economies, could not have functioned. Because for trade exchanges to take place in a favorable framework, monetary disorders had to be controlled. And despite these tensions in the 60s, the world did not experience, between '50 and '80, major financial crises like those of the interwar period, like the '29 crash. But from the moment this world collapses and capital regains its freedom, the cyclical world, the world of financial crises returns. What can be retained from Bretton Woods, despite all the flaws of this system, was perhaps understanding that there could only be sustainable growth if we managed to reconcile these two objectives, that is, the internal and the external. That if we ensured that cooperation between currencies could be a guarantee of peace and not simply a pursuit of surplus and a confrontation between surplus and deficit countries. In short, as often, what allows the most satisfactory achievements are compromises. But also, we must not forget, this system worked because there was an American hegemony for a time. And some today call for a new international monetary system that is more bipolar, unipolar. But curiously, what history tells us is that international monetary systems have never really worked except when there was a dominant power: formerly England, after the war, the United States. So, on the reckoning of Bretton Woods, the dollar still remains this anchor currency, this reference currency, but regulation and adjustments are still to be determined. See you soon.
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