The lesson was that simply having
responsible, hard-working central bankers
was insufficient. Britain in the 1930s had an
exclusionary trade bloc with countries of the British Empire
called the "Sterling
Location". Pegs. If Britain imported more than
it exported to countries such as South Africa, South African
receivers of pounds sterling tended to put them into London
banks. This meant that though Britain was
running a trade deficit, it had a financial account
surplus, and payments stabilized.
Progressively, Britain's
positive balance of payments needed keeping the
wealth of Empire countries in British banks. One
incentive for, say, South African holders of rand to
park their wealth in London and to keep the cash in
Sterling, was a highly valued pound sterling.
But Britain could not devalue, or the Empire surplus would leave its banking system. Nazi
Germany also worked with a bloc of
regulated countries by 1940. Germany
required trading partners with a surplus to invest that
surplus importing items from Germany. Hence,
Britain survived by keeping Sterling
nation surpluses in its banking system, and Germany
survived by requiring trading
partners to acquire its own products. The U.S.
was worried that a sudden drop-off
in war costs might return the country to
unemployment levels of the 1930s, therefore
desired Sterling countries and everybody
in Europe to be able to import from the United States,
for this reason the U.S.
When a lot of the exact
same professionals who observed the
1930s became the architects of a new, unified, post-war system at Bretton Woods,
their directing concepts became "no more beggar thy neighbor" and
"control flows of speculative monetary
capital" (Exchange Rates). Preventing a repeating of this process of competitive
declines was wanted, but
in a manner that would not
force debtor countries to contract their
industrial bases by keeping rate of
interest at a level high enough
to draw in foreign bank deposits. John Maynard
Keynes, careful of duplicating the Great
Depression, lagged Britain's
proposal that surplus countries be
forced by a "use-it-or-lose-it" mechanism, to either
import from debtor nations, build
factories in debtor countries or contribute to debtor
nations.
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opposed Keynes' plan, and a senior official at
the U.S. Treasury, Harry Dexter White, rejected
Keynes' proposals, in favor of an International Monetary
Fund with adequate resources to
counteract destabilizing flows of
speculative finance. Nevertheless, unlike the
modern-day IMF, White's proposed fund would have
combated dangerous
speculative circulations automatically,
with no political strings attachedi. e. International Currency., no IMF conditionality. Economic historian Brad Delong,
writes that on almost every point where
he was overthrown by the Americans, Keynes was later
showed right by
events. Today these crucial 1930s
events look different to scholars of the
era (see the work of Barry Eichengreen Golden Fetters: The
Gold Requirement and the Great Anxiety, 19191939
and How to Avoid a Currency War); in particular,
declines today are viewed with more
nuance.
he proximate reason for the world anxiety
was a structurally flawed and poorly
handled international gold
requirement ... For a variety of reasons,
including a desire of the Federal Reserve to
curb the U.S. stock exchange boom,
monetary policy in a number of
significant nations turned contractionary in the
late 1920sa contraction that was transmitted
worldwide by the gold requirement. Cofer. What was initially a mild
deflationary process started to snowball when the
banking and currency crises of 1931 prompted an
international "scramble for gold".
Sanitation of gold inflows by surplus
countries ,
replacement of gold for forex reserves, and operates on
commercial banks all caused
increases in the gold support of cash, and
subsequently to sharp
unintentional declines in
national cash supplies.
Reliable international
cooperation could in principle have
permitted an around the world
monetary growth in spite of gold standard restraints,
however conflicts over World War I
reparations and war debts, and the insularity
and lack of experience of the Federal Reserve,
amongst other factors,
prevented this result. As a result,
specific countries had the
ability to get away the deflationary vortex only
by unilaterally deserting the gold standard
and re-establishing domestic financial stability, a procedure that dragged on in a halting and uncoordinated way up until France
and the other Gold Bloc nations lastly left gold
in 1936 (Exchange Rates). Great Depression,
B. Bernanke In 1944 at Bretton Woods, as an outcome of the
collective conventional
wisdom of the time, agents from all the
leading allied countries collectively
favored a regulated system of repaired currency exchange rate, indirectly disciplined by a US dollar tied to golda system that depend
on a regulated market economy with tight controls on the
worths of currencies.
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This meant that
global circulations of
financial investment went into foreign
direct financial investment (FDI) i. e.,
building of factories overseas,
rather than worldwide currency
adjustment or bond markets. Although the
national professionals disagreed to
some degree on the particular
application of this system, all
concurred on the requirement for tight
controls. Cordell Hull, U.S. Secretary of State 193344 Also
based upon experience of the inter-war years, U.S.
planners developed a principle of economic securitythat a liberal
international financial system would
enhance the possibilities of postwar peace -
Pegs. Among those who saw such a security link was Cordell
Hull, the United States Secretary of State from 1933 to 1944.
Hull argued nhampered trade dovetailed with peace; high tariffs,
trade barriers, and unreasonable financial
competition, with war if we could get a freer
flow of tradefreer in the sense of fewer
discriminations and obstructionsso that a person
country would not be deadly jealous of
another and the living standards of all
nations might rise,
consequently getting rid
of the economic
dissatisfaction that types war, we
may have a sensible
opportunity of lasting
peace (Nesara). The
developed countries likewise
agreed that the liberal global
financial system needed governmental intervention.
In the consequences of the Great
Anxiety, public management of the economy had become a primary activity of
federal governments in the industrialized
states (Reserve
Currencies).
In turn, the function of government in the
national economy had ended up being
connected with the presumption
by the state of the obligation for
ensuring its citizens of a
degree of financial wellness. The system of
economic defense for at-risk
citizens sometimes called the
well-being state outgrew the Great
Depression, which developed a popular
need for governmental intervention in the economy, and out of
the theoretical contributions of the Keynesian school of economics,
which asserted the requirement for governmental intervention to
counter market flaws. However, increased
federal government intervention in domestic economy brought
with it isolationist belief that had an
exceptionally unfavorable effect on
international economics - Cofer.
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The lesson discovered was, as the
primary architect of the Bretton Woods system New
Dealer Harry Dexter White put it: the absence of a
high degree of economic
partnership among the leading
nations will inevitably lead to
economic warfare that will be however the
prelude and provocateur of military warfare on an
even vaster scale. World Currency. To ensure economic stability and political peace, states
consented to work
together to closely manage the
production of their currencies to keep fixed
currency exchange rate between
countries with the goal of more
easily facilitating
worldwide trade. This was the
foundation of the U - Foreign Exchange.S. vision of postwar world
open market, which
also included decreasing
tariffs and, among other things,
maintaining a balance of trade through fixed currency exchange rate that
would be favorable to the capitalist system.
vision of post-war global financial
management, which intended to develop
and preserve a reliable
global monetary system and
promote the reduction of barriers to trade
and capital circulations. In a sense, the new
global financial system was a
return to a system similar to the pre-war
gold standard, just utilizing U.S. dollars
as the world's new reserve currency till
worldwide trade reallocated the world's gold
supply. Therefore, the new system would be
devoid (at first) of federal governments
meddling with their currency supply as they had
throughout the years of financial turmoil
preceding WWII. Rather, federal governments
would carefully police the production of their currencies and
ensure that they would not
artificially manipulate their
rate levels - Cofer.
Roosevelt and Churchill throughout their secret
conference of 912 August 1941, in Newfoundland led to the Atlantic Charter, which the U - Fx.S. and Britain officially revealed
two days later. The Atlantic Charter, drafted
throughout U.S. President Franklin D. Roosevelt's August 1941
meeting with British Prime Minister Winston Churchill on a
ship in the North Atlantic, was the most
significant precursor to the Bretton Woods
Conference. Like Woodrow Wilson prior to him, whose "Fourteen
Points" had actually outlined U.S.
aims in the after-effects of
the First World War, Roosevelt stated a series of ambitious goals
for the postwar world even prior to the U.S.
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The Atlantic Charter verified the right of all
countries to equal access to trade and basic materials.
Moreover, the charter required
liberty of the seas (a principal U.
Dove Of Oneness.S - Exchange Rates. foreign policy
aim given that France
and Britain had first threatened U.S.
shipping in the 1790s), the disarmament of aggressors, and
the "facility of a wider and more
long-term system of general security".
As the war waned, the Bretton Woods conference was the
culmination of some two and a half years of
preparing for postwar
reconstruction by the Treasuries of the U.S. and the UK.
U.S. agents studied with their British
equivalents the reconstitution of what had
been doing not have in between the 2 world
wars: a system of global payments that would
let countries trade without worry of
abrupt currency devaluation or wild
currency exchange rate fluctuationsailments that had
almost paralyzed world industrialism
throughout the Great Anxiety.
items and services, many policymakers thought, the U.S. economy would be
unable to sustain the success it had
actually achieved during the war.
In addition, U.S. unions had only
grudgingly accepted government-imposed restraints on their
demands throughout the war, however they wanted to wait no longer,
particularly as inflation cut into the existing wage scales
with uncomfortable force. (By the end of
1945, there had actually currently been
significant strikes in the automobile,
electrical, and steel markets.) In early 1945, Bernard
Baruch explained the spirit of Bretton Woods as: if we can
"stop subsidization of labor and sweated competitors in
the export markets," in addition to
avoid restoring of war machines,
"... oh boy, oh boy, what long term prosperity we will have.
Fx." The United States ould for that reason
use its position of influence to resume and
control the world economy, so as
to offer unrestricted access to
all countries' markets and materials.
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help to reconstruct their
domestic production and to fund their
global trade; certainly,
they required it to make it through.
Prior to the war, the French and the British
understood that they could no longer
contend with U.S. markets in
an open marketplace. Throughout the 1930s, the British
produced their own financial bloc to
lock out U (Cofer).S. items.
Churchill did not think that he could surrender that defense after the war, so he thinned down the Atlantic Charter's "free access"
stipulation before agreeing
to it. Yet U.S. officials were
determined to open their access to the British
empire. The combined worth of British and U (Depression).S.
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For the U.S. to open worldwide markets, it
first needed to divide the British (trade)
empire. While Britain had financially
dominated the 19th century, U.S. officials
meant the 2nd half of the 20th to be under
U.S. hegemony. A senior official of the Bank of England
commented: One of the reasons Bretton Woods worked was
that the U (Exchange Rates).S. was plainly the
most powerful country at the table therefore eventually had the ability to
enforce its will on the others, consisting of an
often-dismayed Britain. At the time, one senior authorities
at the Bank of England explained the offer reached at
Bretton Woods as "the best blow to Britain
beside the war", mainly due to
the fact that it underlined the way
monetary power had moved from the UK to the
US.