Currency crises during the Bretton Woods system. The crisis of the Bretton Woods monetary system. Rapid population growth
1944 The Second World War is coming to an end, and its outcome is already clear to everyone. The Yalta Conference took place, during which Stalin, Roosevelt and Churchill generally agreed on the future of the world for the coming decades. Vast areas of the European mainland lie in ruins.
The forces of the warring countries are concentrated on the task of approaching the day of the final defeat of German Nazism and Japanese militarism. The rest of Hitler's allies have already been defeated. And at this very time, there is an invisible battle going on on the financial front, the significance of which not everyone understood at first.
Known as a ski resort, the American city of Bretton Woods (New Hampshire) suddenly became famous. Today this geographical name is mentioned in any economics textbook. The city has become a historical landmark. This is where the Bretton Woods system was founded. The basis for the functioning of all world (including foreign exchange) markets of the so-called free world was created.
Paris system
Any international monetary system is a special type of international agreement, the terms of which spell out the rules of interstate commodity and money circulation. This is necessary in order to bring national monetary units to some common denominator and establish a universal standard of material value.
The first of the officially registered currency systems, the Paris System, was designed to eliminate the confusion in the calculations of exports and imports, which inevitably arises when the governments of different countries pursue independent financial policies and print their own banknotes.
In essence, it de jure confirmed the order to which all the leading world powers had already de facto arrived as of the mid-nineteenth century. The universal standard was gold. For this reason, the Paris system is called monetary-metalistic. The attributes of gold coins, the profiles minted on the reverse and the coats of arms on the obverse did not matter. Their weight was important; it determined the value of a particular currency.
This system functioned successfully, but it also had its drawbacks. It was not easy to make payments in gold coins and bars. At the everyday level, other defects of coin circulation also appeared. When using them as a means of payment, natural wear and tear occurred, in other words, they simply wore out. Carrying a bag of gold with you (if there was one, of course) was inconvenient and dangerous.
In the foreign economic theater, the Paris system was also not always convenient. Countries with mines and deposits automatically became rich, and their level of development did not matter.
Transporting large sums of money by sea was adventurous. Drafts, that is, bills of exchange, were increasingly used.
The time of the collapse of the Paris currency system was the First World War, after which the countries affected by the hostilities began unlimited issuance of the familiar paper substitutes (banknotes and bank notes), this time almost unsecured and becoming cheaper by leaps and bounds. .
Genoa
The fact that paper money would displace precious metal coins from circulation was clear long before the First World War. The only question was how to streamline the issue and encourage the participating countries to stop printing banknotes on the principle of “don’t mind, I’ll draw more.” Only eight years after the end of the great massacre in the Italian city
Genoa brought together delegations from 29 countries and five British colonies, which had a large share of the world's gross output. It is noteworthy that representatives of the North American States did not take part in the conference, but only observed its progress. But the USSR delegation, headed by G. Chicherin, took an active position, taking the opportunity to indicate the actual existence of the first proletarian state on the world map.
The result of the Genoa Conference was the adoption of an agreement on a new monetary system, which was based on the so-called “mottos,” that is, currencies with a specific gold content. This does not mean that their rates could not fluctuate relative to each other, but gold monometallism, which replaced the standard, stabilized the situation in the markets and streamlined payments, although not immediately. The Genoese system lasted until the end of World War II.
Initiators of the new system
The Bretton Woods system did not arise spontaneously; its emergence was initiated by representatives of the US business elite, who strived for world hegemony in the post-war world. At that time, the American economy was at the peak of its development. The World War spun the flywheel of domestic production, which was already growing successfully thanks to the reforms carried out by President F. D. Roosevelt. Already by 1939, the consequences of the Great
Depressions were largely overcome, military orders contributed to the development of industry, and food shortages, reaching the point of famine in Europe, spurred agriculture. The United States had every reason to claim the role of world economic leader. The Bretton Woods monetary system was designed to consolidate this position for many decades. But first the International Monetary Fund was established. It began operating in 1947.
IMF
Superpowers, unlike ordinary citizens, like to borrow money. Especially if they print them themselves. The founders of the International Monetary Fund were 44 countries, of which only the United States could be a financial donor. All of Europe lined up for loans to improve the economic situation in countries affected by the war. Without these funds, it was not possible to get out of poverty; the situation was in favor of the United States, and the American leadership wisely took advantage of its preferences.
Like any sober-minded creditor, the IMF demanded guarantees of the return of borrowed funds, and therefore had a vested interest in their effective spending. In case of difficulties, stabilization took place in the form of providing additional loans to avoid default and the collapse of national currency rates. The economic situation in the IMF member countries was carefully monitored.
Gold dollar standard and other principles
Stability of exchange rates was the most important condition for the successful functioning of the “free market”. The Bretton Woods monetary system established the gold exchange standard. The only stable currency backed by the “yellow metal” at that time was the US dollar. You could get approximately 0.89 grams of gold for it at any time. At its core, the standard was a gold-dollar standard, and not an abstract gold-currency standard.
American greenish, rough pieces of paper became world money precisely after the war. At first there were relatively few of them. In the reserves of all other countries of the world, their share accounted for only 10%. For comparison, national banks then saved their reserves in pounds sterling approximately four times more often, and half were in gold.
However, the dollar soon gained dominance. This was facilitated by many factors, in particular the huge gold reserves of the United States (three quarters of the world's volume, or $20 billion), and the excellent macroeconomic indicators of the United States in the second half of the 40s, and the hegemony of American goods on the world market, expressed in an impressive positive foreign trade balance.
Why is devaluation good?
Devaluation, that is, a depreciation of the national currency, is usually seen as a symptom of an unfavorable economic situation. But this phenomenon also has its advantage. Imported goods, of course, become more expensive, but exports become profitable, and the foreign trade balance is leveled in favor of the “victim.” Another positive aspect of the devaluation is that so-called “fast money” is beginning to flow into the country. Domestic costs are reduced, there is an incentive to produce goods here rather than where the currency is expensive, and foreign investment increases.
The creators of the Bretton Woods system, the principles of which were based on market mechanisms, understood the danger of such a development of events. They had at their disposal not only a “stick” (that is, the possibility of refusing loans and other sanctions), but also a “carrot”, that is, a willingness to always come to the aid of those who followed the rules. Even a certain flexibility in setting exchange rates was allowed.
Obligations of the parties
When receiving an IMF loan, IMF member countries took upon themselves the obligation to maintain the exchange rate of their currency in such a way that its fluctuations did not exceed one percent of the ratio established through the gold content to the US dollar. The Bretton Woods world system allowed, in exceptional cases, to increase this figure to 10%, but if this threshold was exceeded, the perpetrators could face IMF sanctions. The instrument of regulation was foreign exchange interventions. To implement them, dollars were again needed. The Federal Reserve was willing to sell them.
How the Bretton Woods system worked in the early years
In the second half of the forties, bright prospects opened up for the US economy. Almost all countries that took part, active or passive, in the war suffered in one way or another. Enterprises in Germany, Great Britain, France, Belgium, Austria and other Western European countries needed time to rebuild production to produce civilian goods. There was a shortage of food, hygiene items, cigarettes, clothing and generally everything necessary.
Eastern Europe came under the influence of the communist political system, where the restoration of the economy was accompanied by radical ideological changes and Sovietization. In addition to purely economic objectives, the Bretton Woods system was supposed to demonstrate the capabilities and superiority of the free market. The Marshall Plan was put into action, which in a certain sense became a forced measure designed to promote the rise of the European economy.
US global interests find themselves in a situation of internal conflict. On the one hand, if European producers became more active, American export potential decreased. But if you look at this issue more broadly, it turned out that the impoverishment of the broad masses created the risk of pro-Stalinist forces coming to power, and peacefully and democratically. President Truman could not allow this to happen.
World events
Since the early fifties, European economies began to experience growth. The dollar continued to hold its leading position, all other world currencies followed it. Boundless confidence in the American monetary unit, based on its guaranteed backing in gold, seemed unshakable. At the same time, the costs that the United States was forced to bear in the process of fighting communism became increasingly greater. In 1949, the People's Republic of China was formed.
“Red China” became another headache for Uncle Sam, who had lost control over a vast territory with a gigantic population. Literally a year later, the Korean War began, in which volunteers from the new socialist country took part (there were a lot of them), armed with Soviet equipment (it was very good, and there was also a lot of it). The formally united forces of the UN opposed this armada, but the obvious fact was that the main burden, including financial, was borne by the United States.
The fall in foreign trade turnover has not yet affected the general condition of the dollar; the entire Bretton Woods world system rested on it, but the increase in expenditure items forced the Federal Reserve System to turn on the printing press at full speed.
As the economic situation of Britain, Japan and many European countries improved, the need arose to regulate exchange rates. The main instrument in this case was currency interventions. If it was necessary to lower the exchange rate of the national currency relative to the dollar, it had to be offered to the market in large volumes. The increase in the exchange rate required a reverse measure, the sale of dollars.
Changes in gold coin parities towards revaluation were, as a rule, carried out reluctantly, since it led to a deterioration in the competitiveness of manufactured goods. Devaluation was more in line with the national interests of the countries in which the Bretton Woods world monetary system operated. In Britain and Italy it was carried out five times almost simultaneously (in 1964, 1967, 1969, 1972 and 1974), in West Germany three times (1961, 1967, 1969), in France twice in ten years (1957 and 1967). Countries with weak economies avoided this measure, mainly for reasons of international prestige.
The increase in capital movements, the development of foreign exchange markets and other factors clearly indicated an impending crisis of the Bretton Woods monetary system.
French incident
The disproportion between the volumes of cash dollars issued for circulation and exported abroad with the economic situation in the United States could not go unnoticed by financial analysts. The first call came in 1965. For some reason, President De Gaulle suddenly remembered that the Bretton Woods system provides a guarantee of exchange for gold at a rate of $35 per gram. France's gold and foreign exchange reserves contained about a third of a billion (an astronomical amount at that time).
The overall situation with the ability to fulfill obligations was difficult. The space race was going on, the Americans wanted to land on the moon. The difficult, dirty and very expensive Vietnam War continued. The US Treasury Department tried to hint that the requirement to exchange such a significant amount at such a moment was, to put it mildly, an unfriendly step, but De Gaulle was adamant, he, you see, trusted metal more than paper.
Dollars were exchanged, but the French president paid for it. Student unrest soon began, growing into a full-scale uprising. Technologies for creating mass unrest were already developed then. Soon De Gaulle was forced to resign. But it became clear to everyone that the collapse of the Bretton Woods system was just around the corner.
Drawing rights
As the US trade surplus declined, confidence in the dollar fell. To smooth out the growing contradictions, the IMF decided to use a mechanism in which the Special Drawing Rights, a special monetary unit that, unlike the US dollar, is not backed by gold, but is formally equal to it in value, became a conditional means of payment. This currency surrogate was used for mutual offsets of debts between the central banks of IMF member countries. The crisis of the Bretton Woods system was gaining momentum, and if all countries with dollar reserves had presented these funds for payment in gold, then there would simply not be enough gold in the mid-sixties.
End
In 1971, violations of the terms of the Bretton Woods agreement began. All circumstances spoke of an imminent devaluation of the main world currency; it was expected. The first to give in were the US's European allies - Belgium, Holland and West Germany. These countries introduced a floating exchange rate, which was determined by supply and demand in the foreign exchange markets. Japan held out longer, almost until September 1971, but in the end it also let the yen go down the quote waves.
Since in fact the dollar could no longer be freely exchanged for gold (De Gaulle’s example was well remembered), the so-called “dollar standard” was introduced. The devaluation finally took place, the rate rose to $38 per troy ounce, but it was clear that this figure was very arbitrary. All these processes took place within the framework of the recently concluded Smithsonian Agreement between the ten leading capitalist countries. The EEC countries took protective measures by agreeing on a maximum rate of fluctuation of their currencies of no more than one-half of the dollar margin (the term “Snake in the Tunnel” also appeared).
Following the introduction of a floating exchange rate for the pound in Great Britain in 1972, the Bretton Woods system was effectively and legally abolished. An ounce of gold at that time was already worth more than $42.
Jamaica!
All currencies were divided into three groups. Freely convertible (in the USSR they even came up with the abbreviation “SKV”) are considered the most “solid”, their rates should fluctuate within 1%. The requirements for conditionally convertible currencies are not so strict, up to two and a quarter. The rest of the money floats freely; according to the authors of the system, few people are interested in it. The Jamaican system began a situation in which, as one leading economist put it, wheat that had not yet been grown was sold for money that was not printed.
But that’s another story, a modern one.
The main reason for the crisis of the Bretton Woods system was the contradiction between the international nature of international economic relations and the use of national currencies subject to depreciation to service them in monetary form.
The structural principles embedded in the Bretton Woods system no longer correspond to the conditions of global expanded reproduction, rapidly growing international economic relations and the changed balance of forces. Crisis of the late 1960s. became not only a cyclical, structural crisis, but also a crisis of the entire system of international regulation of the international currency market.
Causes of the crisis of the Bretton Woods monetary system can be represented as a chain of interdependent factors.
- 1. Instability and contradictions of the world economy. The onset of the currency crisis in 1967 coincided with a slowdown in economic growth. The global cyclical crisis affected the Western economy in 1969-1970, 1974-1975, 1979-1983.
- 2. Increased inflation negatively affected world prices and the competitiveness of firms, and encouraged speculative movements of “hot” money. Different rates of inflation in different countries affected the dynamics of exchange rates, and the decrease in the purchasing power of money created the conditions for “exchange rate distortions.”
- 3. Instability of balances of payments. The chronic deficit of the balance sheets of some countries (Great Britain, the USA) and the surplus of others (Germany, Japan) intensified sharp fluctuations in exchange rates down and up, respectively, and the instability of the balance of payments, which was expressed in their chronic deficit despite strict external regulation by the IMF. In 1968, the US balance of payments deficit was equal to $28 million, France – $10.2 million, Great Britain – $3.8 million. At the same time, the global imbalance of the foreign exchange market was expressed in the surplus of the German balance of payments + $15.4 million ., Japan + $19.9 million, Canada + $6 million. The imbalance in the balance of payments of countries participating in the monetary system increased the amplitude of exchange rate fluctuations, which led to their forced devaluations (US dollar in 1971 and 1973, pound sterling and countries of the sterling zone in 1967, the French franc and the countries of the franc zone in 1969) and revaluations (German marks in 1969, Japanese yen in 1968). After changes in exchange rates, there was some lull, but after a short period of time sharp fluctuations in exchange rates began again, which neither the IMF nor the European Union could no longer regulate.
- 4. The inconsistency of the principles of the Bretton Woods system with the changed balance of forces on the world stage. The monetary system, based on the international use of national currencies subject to depreciation (the dollar and partly the pound sterling), came into conflict with the internationalization of the world economy. This contradiction of the Bretton Woods system intensified as the economic positions of the United States and Great Britain weakened, which repaid the deficit of their balance of payments with national currencies, abusing their status as reserve currencies. As a result, the stability of reserve currencies was undermined.
- 5. The right of owners of dollar holdings to exchange them for gold came into conflict with the US ability to fulfill this obligation. Short-term foreign debt of the United States increased over 1949–1971. by 8.5 times, and official gold reserves during the same period decreased by 2.4 times.
- 6. The role of transnational corporations (TNCs) in the foreign exchange sector. TNCs had gigantic short-term assets in different currencies, which significantly exceeded the foreign exchange reserves of the central banks of the countries in which the headquarters of the TNCs were located. These amounts were beyond national control and, in the pursuit of profits, TNCs were used in currency speculation, giving them gigantic scope. TNCs had short-term assets, which in the 1960s. increased the volume of speculative transactions in the foreign exchange market by 6 times and gave impetus to the independent development of the derivatives market (currency derivatives).
- 7. Inconsistency of principles of external regulation international monetary system to the real conditions of its functioning that had developed by the 1960s. Reserve currencies (dollar and pound) depreciated, which did not correspond to their status; The United States could no longer exchange dollar holdings of other countries for gold; the official price of gold was too low and interstate regulation could no longer restrain its growth; a double gold market was formed, gold parities lost their meaning; The fixed exchange rate regime increased exchange rate distortions and central banks were forced to carry out foreign exchange interventions to the detriment of their currencies in order to support the dollar.
- 8. Activation of the Eurodollar market. The principle of American-centrism no longer corresponded to the new balance of power: Western Europe - USA - Japan. In Europe, due to the chronic deficit of the US balance of payments, which they covered with dollars, a huge Eurodollar market was formed: if in 1960 it was $2 billion, then by 1980 it was $750 billion, or 81% of the volume of the entire Euromarket.
Forms of manifestation of the crisis of the Bretton Woods monetary system become:
- 1) "currency rush" - the movement of “hot” money, the massive sale of unstable currencies in anticipation of their devaluation and the purchase of currencies that are candidates for revaluation;
- 2) "Golden fever " – flight from unstable currencies to gold and periodic increases in its price;
- 3) panic on stock exchanges and a fall in securities prices in anticipation of changes in exchange rates;
- 4) exacerbation of the problem of international currency liquidity, especially its quality;
- 5) massive devaluation And revaluation currencies (official and unofficial);
- 6) active currency intervention central banks, including collective;
- 7) sharp fluctuations in the value of official reserves of gold and currency,
- 8) use of foreign loans and borrowing from the IMF to support currencies;
- 9) violation of structural principles Bretton Woods system;
- 10) activation national and interstate currency regulation;
- 11) gain two trends in international economic and monetary relations – cooperation and confrontation, which periodically escalated into trade and currency wars.
Stages of development of the crisis of the Bretton Woods monetary system.
The currency crisis developed in waves, hitting one country or another at different times and with different strengths. The development of the crisis of the Bretton Woods monetary system can be divided into several stages.
Devaluation of the pound sterling.
Due to the deterioration of the country's monetary and economic situation, on November 18, 1967, the gold content and the exchange rate of the pound sterling were reduced by 14.3%. Following England, 25 countries, mainly its trading partners, devalued their currencies in different proportions.
Golden fever , collapse of the gold pool, formation of a double gold market.
Owners of dollars began to sell them for gold. The volume of transactions in the London gold market increased from its usual value of 5-6 tons per day to 65-200 tons (November 22-23, 1967), and the price of gold rose to $41 from the official price of $35 per day. ounce Bouts of gold fever led to the collapse of the gold pool in March 1968 and the formation of a dual gold market.
Devaluation of the French and Swiss francs. The detonator of the currency crisis was currency speculation - a game to reduce the exchange rate of the Swiss currency ( CHF) and an increase in the exchange rate of the German mark in anticipation of its revaluation. The advance of the mark on the franc was accompanied by political pressure from Bonn on Paris and an outflow of capital from France, mainly to Germany, which caused a reduction in the country's official gold and currency reserves (from $6.6 billion in May 1968 to $2.6 billion). in August 1969). Despite the currency intervention of the Bank of France, the Swiss currency fell to the lowest acceptable limit. The turbulent political events of 1968 in France, the resignation of Charles de Gaulle, and the refusal of Germany to revalue the mark increased pressure on the franc. On August 8, 1969, the gold content and the French franc rate were reduced by 11.1% (foreign exchange rates against the Swiss currency increased by 12.5%). At the same time, the currencies of 13 countries on the African continent and Madagascar were devalued.
Revaluation of the German stamp.
On October 24, 1969, the mark rate was increased by 9.3% (from 4 to 3.66 marks per $1). The revaluation was a concession by Germany to international financial capital: it contributed to the improvement of the balance of payments of its partners, since their currencies were actually devalued. The outflow of “hot” money from Germany replenished the foreign exchange reserves of these countries. For 20 months there was relative calm in the foreign exchange markets, but the causes of the currency crisis were not eliminated.
In accordance with IMF rules, the resulting excess dollars in the private foreign exchange market had to be absorbed by foreign central banks, which was required to maintain existing currency parities. However, such actions gave rise to expectations that the dollar would depreciate relative to the stronger currencies of countries that had accumulated huge dollar claims, in particular France, West Germany and Japan. These expectations were reinforced by official statements by the US government that it viewed changes in exchange rates as a measure necessary to restore balance of payments equilibrium and the competitiveness of American goods in foreign markets.
The crisis of the Bretton Woods system reached its climax in the spring and summer of 1971, when the main reserve currency was at its epicenter. The dollar crisis coincided with a long depression in the United States following the economic collapse of 1969–1970. Under the influence of inflation, the purchasing power of the dollar fell by 2/3 in mid-1971 compared to 1934, when its gold parity was established. The total US current account deficit was $71.7 billion for 1949–1971. The country's short-term external debt increased from $7.6 billion in 1949 to $64.3 billion in 1971, exceeding by 6.3 times the official gold reserve, which decreased during this period from $24.6 billion. up to $10.2 billion
The crisis of the American currency was expressed in its mass sale for gold and stable currencies, and a depreciation. Uncontrollably roaming Eurodollars flooded the currency markets of Western Europe and Japan. The central banks of these countries were forced to buy them to maintain the exchange rates of their currencies within the limits established by the IMF. The dollar crisis caused a political form of protests by countries (especially France) against the privilege of the United States, which covered the balance of payments deficit with the national currency. France exchanged $3.5 billion for gold with the US Treasury in 1967–1969. Since the late 1960s. the conversion of the dollar into gold became a fiction: in 1970, 50 billion dollar holdings of non-residents were countered by only 11 billion dollars of official gold reserves.
The US, as the hegemonic currency country, took a number of measures to save the Bretton Woods system in the 1960s. Dollar balances were partially transformed into direct loans. Swap agreements were concluded ($2.3 billion in 1965, $11.3 billion in 1970) between the Federal Reserve Bank and a number of foreign central banks. Under US pressure, the central banks of most countries refrained from exchanging their dollar reserves for gold in the US Treasury. The IMF invested part of its gold reserves in dollars, contrary to its Charter. A decision was made to double the capital of the IMF (up to $28 billion) and a general agreement was reached between 10 member countries of the fund and Switzerland on IMF loans (totaling $6 billion), introducing in 1970 the SDR standard to cover the balance of payments deficit, international unit of account, which in 1969 was expressed in gold - 1 ounce of gold = 35 SDR, i.e. 1 SDR = 1 US dollar = 1/35 ounce of gold).
Maintaining the SDR gold rate at the level of 1 SDR = 1/35 ounce led to the fact that the SDR ceased to fulfill its international functions. Therefore, in 1974, it was decided to express the value of the SDR through baskets of currencies, which consisted of the currencies of 16 countries. These countries had the largest shares in international trade. The share of the currency of each country was approximately equal to the share of participation of this country in international trade, namely the US dollar - 33.3%, the German mark - 12.5%, the French franc - 7.05%, the Japanese yen - 7.5%, the Canadian dollar – 6%, etc.
In 1980, the International Monetary Fund reduced the number of currencies in the basket and on January 1, 1981 there were only five, with 1 SDR = $0.54 + 0.64 DM + 345 Y + 0.74 FF + £0.071.
In 1981, the dollar was included in the SDR with a coefficient of 42%, the German mark - 19%, the French franc, yen and pound - 13% each. However, since that time, the ratio coefficients have constantly changed, since in the basket of currencies it was not the percentage ratios themselves that were recorded, but the amount of currency in the basket. In other words, percentages constantly changed with changes in exchange rates. Since 1986, the amounts have been reviewed every five years and, in some cases, changed. SDRs could only be used to settle external balances.
Originally, from 1969 to 1981, SDRs were required to be reinstated if they were more than 75% used within five years. In other words, the mandatory restoration (payment) was limited to 30% of the SDR supply in the event that they were fully used. It was enough to maintain the level of 70% in order not to resort to payments. Compulsory restoration was abolished in 1981, since then SDRs are no longer paid, as they were not intended as a means of lending, but as a new means of international payments, as well as a new means of international savings. Currently, the SDR exchange rate is calculated on the basis of a weighted average of a currency basket consisting of four currencies: the US dollar, the euro, the pound sterling and the Japanese yen.
The United States stubbornly resisted the overdue devaluation of the dollar and insisted on revaluing the currencies of its trading partners. To break the resistance of trading rivals, the United States adopted a policy of patronage. On August 15, 1971, emergency measures were announced to save the dollar: the exchange of dollars for gold for foreign central banks (the “gold embargo”) was stopped, and an additional 10% import duty was introduced. The influx of dollars into Western European countries and Japan caused a massive transition to floating exchange rates and a speculative attack on the dollar by their strengthened currencies. France introduced a dual currency market following the example of Belgium, where it had operated since 1952. Western European countries began to openly oppose the privileged position of the dollar in the world monetary system.
The search for a way out of the currency crisis ended with the G10 compromise Washington Agreement on December 18, 1971. Agreements were reached on the following points:
– devaluation of the dollar by 7.89% and an increase in the official price of gold by 8.57% (from 35 to 38 dollars per ounce);
revaluation of a number of currencies;
- – expansion of the limits of exchange rate fluctuations from ±1 to ±2.25% of their parities and the establishment of central rates instead of currency parities;
- – abolition of the 10% customs tax in the USA.
But the United States did not commit to restoring the convertibility of the dollar into gold and participating in foreign exchange intervention. Thus, they maintained the privileged status of the dollar.
The dollar devaluation law was signed by President R. Nixon on April 3 and approved by Congress on April 26, 1972. The increase in the price of gold was legalized after the registration of the new dollar parity with the IMF and notification of member countries of the fund on May 8, 1972. It should be noted that the time lag between the period for making a decision to change the official exchange rate and its legal registration was of practical importance for international payments, since the implementation of protective clauses took into account the normative act. The devaluation of the dollar caused a chain reaction: by the end of 1971, 96 of the 118 member countries of the IMF had set a new exchange rate to the dollar, and the rate of 50 currencies was increased to varying degrees. Taking this into account, the weighted average value of the dollar devaluation was 10–12%.
Dollar devaluation in February 1973
The Washington Agreement temporarily smoothed over the differences, but did not eliminate them. In the summer of 1972, a floating exchange rate for the pound sterling was introduced, which meant its actual devaluation by 6–8%. This complicated Britain's relationship with the EEC, as it violated the Common Market agreement of April 24, 1972, narrowing the limits of exchange rate fluctuations to ±1.125%. Britain was forced to compensate the owners of sterling holdings and introduce a dollar and, from April 1974, a multi-currency clause as a guarantee of maintaining their value. Foreign exchange restrictions were strengthened to curb capital flight abroad. The pound sterling has lost its reserve currency status.
In February–March 1973, a currency crisis hit the dollar again. The impetus was the instability of the Italian lira, which led to the introduction of a dual currency market in Italy (from January 22, 1973 to March 22, 1974), following the example of Belgium and France. The "gold rush" and the rise in the market price of gold once again exposed the weakness of the dollar. However, unlike 1971, the United States failed to achieve a revaluation of the currencies of Western Europe and Japan. On February 12, 1973, the dollar was devalued again by 10%. The surcharge served two purposes: to limit imports by making them more expensive, and to warn foreign governments that unless they took dramatic steps to boost U.S. exports, their own exports to the United States would be severely limited.
The official price of gold was increased by 11.1% (from 38 to 42.22 dollars per ounce). The massive sale of dollars led to the closure of leading foreign exchange markets (from March 2 to March 19). The new consensus - the transition to floating exchange rates from March 1973 - corrected the "exchange distortions" and relieved tension in the foreign exchange markets.
Six Common Market countries have abolished the outer limits of agreed fluctuations in the exchange rates of their currencies (the “tunnel”) against the dollar and other currencies. The decoupling of the “European currency snake” from the dollar led to the emergence of a kind of currency zone led by the German mark. This indicated the formation of a Western European zone of monetary stability as opposed to the unstable dollar, which accelerated the collapse of the Bretton Woods system.
The interweaving of the currency crisis with the energy and global economic collapse.
The sharp rise in oil prices at the end of 1973 led to an increase in the current account deficits of industrialized countries. The currencies of Western Europe and Japan fell sharply. There was a temporary appreciation of the dollar, as the United States was better endowed with energy resources than its competitors, and the positive impact of its two devaluations on the country's balance of payments became apparent, although not immediately. The currency crisis intertwined with the global economic collapse in 1974–1975, which increased fluctuations in exchange rates (up to 20% per year in the late 1970s).
As a result of the measures taken, the gold exchange standard was transformed into a paper-dollar standard, in which all countries except the United States took on risky obligations to maintain new exchange rates, which were actually enshrined in the Smithsonian Agreement.
The practice of floating exchange rates spontaneously developed, and the Bretton Woods currency system ceased to function. The crisis of the Bretton Woods financial system completed the third cycle of development of the foreign exchange market and created the preconditions for the formation of a new international monetary system, within which the market was finally structurally formed and still exists.
The Bretton Woods monetary system is an international form of organizing monetary and financial relations and trade settlements, formed after the Second World War
Definition, history and goals of the creation of the Bretton Woods monetary system, problems of its functioning, crisis and fall, key dates, forms of manifestation and consequences of the crisis of the Bretton Woods monetary system
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The Bretton Woods monetary system is, definition
The Bretton Woods system, the Bretton Woods agreement (English: Bretton Woods system) is an international system for organizing monetary relations and trade settlements, established as a result of the Bretton Woods Conference, held from July 1 to July 22, 1944. Replaced the financial system based on the “gold standard”. Named after the Bretton Woods resort in New Hampshire, USA. The conference marked the beginning of such organizations as the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF). The US dollar has become one of the types of world money, along with gold. In 1971-1978, the Bretton Woods system was replaced by the Jamaican currency system, based on free trade in currencies (free conversion of currencies). The USSR, which took part in the conference, signed the agreement, but did not later ratify it.
Bretton Woods monetary system or Bretton Woods agreement) - This an international system for organizing monetary relations and trade settlements established as a result of the Bretton Woods Conference (July 1 to 22, 1944). The name comes from the Bretton Woods resort in New Hampshire, USA. The system gave rise to organizations such as the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF). The US dollar has become one of the types of world money, along with gold. This was a transitional stage from the gold exchange standard to free conversion based on supply and demand.
a form of organization of monetary relations and settlements established by the Bretton Woods Conference in 1944, according to which the role of world money, along with gold, is played by the US dollar.
The Bretton Woods monetary system is the world monetary system, which took shape at the UN monetary and financial conference in Bretton Woods (USA) in 1944. The Bretton Woods monetary system consisted of agreements on the creation of the International Monetary Fund and the International Bank for Reconstruction and Development. The main principle of the Bretton Woods monetary system - the function of world money remained with gold, however, the scale of its use in international monetary relations was significantly reduced, and the US dollar was introduced as an international means of payment in international circulation. To mitigate crises of individual currencies, states issued loans to each other through the IMF. The Bretton Woods currency system was a system of interstate gold-dollar standard and placed the US dollar in a privileged position, thanks to which the United States could pay off its debts not with gold, but with dollars. The rapid development of the economies of Western Europe in the 60s. and other reasons led to an international currency crisis. In 1971, the exchange of dollars for gold was stopped and all currencies lost any connection with gold.
The Bretton Woods monetary system is the international monetary system that was formed after the Second World War and was based on the adaptation of national currency systems to the currency systems of the leading states at that time, primarily to the US national system. The system was established as a result of the Bretton Woods Conference (from July 1 to July 22, 1944). The name comes from the name of the Bretton Woods resort in New Hampshire, USA. The system gave rise to organizations such as the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF).
The Bretton Woods monetary system is international system of mutual settlements and currency relations that existed in 1944-1976. Named after the site of the UN conference in Bretton Woods, USA. It was the Bretton Woods system that turned the dollar into an international means of payment and storage of reserves. The Bretton Woods system was created to take the world economy to a new level after World War II. It is believed that she coped with this task, but in the future, developing world trade required more means of payment than US dollars, which were backed by cash gold. Therefore, by 1976, the exchange of currency for precious metals was completely stopped. As a result, the leading powers entered into a new international agreement that created the so-called Jamaican Monetary System, which is in force to this day.
The Bretton Woods monetary system is a system of currency regulation, which was created on the basis of an agreement signed by representatives of 44 countries at the UN Monetary and Financial Conference held in 1944. in Bretgon Woods (USA). Decisions were made to create the International Monetary Fund (IMF) and the World Bank, which entered it as the main institutions. The introduced rules of foreign exchange regulation were aimed at stabilizing exchange rates and liberalizing world trade. They assumed the fixation of exchange rates by linking them to gold and the US dollar, which were given the functions of international currency reserves (gold-exchange standard). Only minimal divergence (deviation) of the rates of national currencies from their dollar parity or gold content was allowed. The IMF Charter established the official price of gold: 35 US dollars per troy ounce. The depreciation of the dollar, which was the key currency of Bretton Woods, and the change in the balance of forces in the world economy led to a crisis in the system of fixed exchange rates and the erosion of the Bretton Woods system.
New principles of foreign exchange regulation, agreed in 1976. (Jamaican currency system), consisted of a gradual transition to a system of floating rates, a complete departure from the gold standard while maintaining the role of gold as a fund of liquid assets. The role of the IMF in regulating the world monetary system and the international monetary unit it issues - the Special Drawing Rights (SDR) - has increased. By 1993, the transition of most developed countries from fixed to floating exchange rates was completed. The IMF and the official price of gold were abolished. The possibility of using national currencies as world money created the preconditions for the transition from an asymmetrical (with the dollar as reserves) to a symmetrical multicurrency system. The formation of such a system accelerated in connection with the formation of the European Monetary Union (EMU) and the introduction of a single European currency - the euro. In the development of the global financial market at the present stage, a tendency has emerged towards the formation of currency blocks (zones) around the leading currencies. This is the European euro area, as well as an informal dollar bloc of countries that, in their monetary policy, are guided by the US dollar (Latin American countries). In the future, there will be the emergence of a new currency zone in Southeast Asia.
The history of the creation of the Bretton Woods monetary system
As you know, nothing happens just like that, without any reason. In the same way, prevailing historical, political and economic factors in the international arena led to the creation of the Bretton Woods monetary system. What these reasons are and exactly how the Bretton Woods monetary system was created we will examine in this section.
The patterns of development of the currency system are determined by the reproduction criterion and reflect the main stages of development of the national and world economy. This criterion is manifested in the periodic discrepancy between the principles of the world monetary system and changes in the structure of the world economy, as well as in the balance of power between its main centers. In this regard, a crisis of the world monetary system periodically arises. This is an explosion of currency contradictions, a sharp disruption of its functioning, manifested in the discrepancy between the structural principles of the organization of the world monetary mechanism and the changed conditions of production, world trade, and the balance of forces in the world. This concept arose with the crisis of the first world monetary system - gold monometallism. Periodic crises of the world monetary system occupy a relatively long historical period of time: the crisis of the gold coin standard lasted about ten years (1913-1922), the Genoese monetary system - 8 years (1929-1936), the Bretton Woods - 10 years (1967- 1976).
During a crisis of the world monetary system, the operation of its structural principles is disrupted and currency contradictions sharply worsen. Acute outbreaks and dramatic events associated with a currency crisis cannot continue for long without threatening reproduction. Therefore, various means are used to smooth out acute forms of the currency crisis and carry out reform of the world monetary system. The evolution of the world monetary system is determined by the development and needs of the national and world economy, changes in the balance of power in the world.
The Genoese monetary system is the predecessor of Bretton Woods
The Genoese currency system was formed in 1922 at the Genoese International Economic Conference and was based on the gold exchange standard. In other words, the basis of the system was gold and mottos, that is, the leading national currencies. These national currencies began to be used as international means of payment. Since the status of the reserve currency was not officially determined, the leadership was contested by the US dollar and the British pound sterling. Thus, the gold exchange standard consisted in the fact that individual national banknotes began to be exchanged not for gold, but for the currencies of other countries, which formed 2 main ways of exchanging national currency for gold:
Direct method (for currencies that serve as mottos);
Indirect (for all other currencies).
The British pound sterling and the American dollar competed for leadership in the world foreign exchange market as reserve currencies. Exchange rates could fluctuate around monetary parity within gold points of the cost of sending gold, the equivalent of one unit of foreign currency, between the monetary centers of Great Britain and the United States. Great Britain's attempts to restore the gold standard were unsuccessful: as a result of the overvaluation of the pound sterling, the balance of payments deficit increased. Great Britain was forced to abolish the convertibility of the pound into gold in 1931. This measure, against the backdrop of the Great Depression in the late 20s and early 30s, became a manifestation of the global currency crisis, the way out of which countries saw in the devaluation of their currencies. The devaluation of the dollar by increasing the cost of an ounce of gold from 20.65 to 35 dollars in 1933 was used by the United States, which had a positive balance of payments balance, as a measure to promote its exports and create additional jobs in export industries and reduce unemployment. Against this background, countries, protecting themselves from foreign competition, were forced to begin introducing high customs duties and import tariffs. The result of these measures was a reduction in foreign trade and international payments. As a result, the Genoese monetary system lost its elasticity and stability. The exchange of banknotes for gold in the internal circulation of all countries was stopped, and only the external convertibility of currencies into gold was preserved by agreement of the central banks of the USA, Great Britain and France. Another shock to the world monetary system was the economic crisis of 1937, which caused a new wave of currency depreciation. By the beginning of World War II, there was not a single stable currency left.
Basic principles of functioning of the Genoese currency system:
Gold retained the function of final monetary settlements between countries;
The American dollar became the reserve currency, which, along with gold, was recognized as a measure of the value of the currencies of different countries, as well as an international means of payment;
The dollar was exchanged for gold by central banks and government agencies of other countries at the US Treasury at a fixed rate. Government agencies and individuals could purchase gold on the private market. The currency price of gold was based on the official one;
The equalization of currencies to each other and their mutual exchange were carried out on the basis of official currency parities, expressed in gold and dollars;
Each country was required to maintain a stable exchange rate of its currency relative to every other currency;
A new element of the global monetary system was currency regulation, which was carried out in the form of an active monetary policy, international conferences and meetings.
Gold parities have been preserved. Currency regulation appeared, which was initially carried out within the framework of conferences and meetings. The gold exchange standard did not last long. World economic crisis of 1929-1931 undermined its foundations and affected denominational currencies, especially the dollar. It was at this time that currency blocks and zones began to take shape on the basis of the national currency systems of leading countries. A currency bloc is a grouping of countries dependent in economic, monetary and financial relations on the power headed by the bloc, which dictates to them a unified policy in the field of international economic relations, uses them as a privileged market for its goods, a source of cheap raw materials and a profitable area for increasing capital; the purpose of currency blocs is - strengthening the competitive position of the leading country in the international arena. Currency blocks are characterized by the following features:
The exchange rate of dependent currencies is fixed to the currency of the leading country;
International settlements of the countries included in the bloc are carried out in the currency of the leading country;
Foreign exchange reserves are held in the country led by the bloc;
The dependent currencies are backed by government loan securities of the leading country.
Dollar, sterling and gold blocks were formed. Dollar was founded in 1933. It included the USA (leader), Canada, and the countries of Central and South America, where American capital dominated. The sterling bloc was created in 1931 and included Great Britain, Hong Kong, Egypt, Iraq, Portugal, Denmark, Norway, Sweden, Finland and some other countries. The gold bloc, founded in 1933, included countries that sought to maintain the gold standard, namely: France, Belgium, the Netherlands, Switzerland, Italy, Czechoslovakia, Poland. All these blocs collapsed during the Second World War. During the war, currency restrictions were introduced by both belligerent and neutral countries. Frozen official exchange rates remained virtually unchanged, although the purchasing power of money was constantly declining as a result of inflation. The role of gold as a global reserve and means of payment increased again, and military or strategic goods could only be purchased with gold. Accordingly, the exchange rate has lost its active role in economic relations. The war further deepened the crisis of the Genoese currency system, and the development of a project for a new currency system began already during the war years by British and American specialists, as states feared a repetition of the currency crises of the 30s.
The experts who worked on the project sought to develop the principles of a currency system capable of ensuring economic growth and limiting the negative socio-economic consequences of crises. As a result, the project of G. D. White (USA) and the project of J. M. Keynes (Great Britain) were prepared, which were characterized by the following general principles:
Free trade and capital movement;
Balanced balances of payments, stable exchange rates;
Gold exchange standard;
The Genoese currency system did not last long - only 22 years and already in 1944 it gave way to the Bretton Woods system, which will be discussed below.
The impact of World War II on economic relations
During the Second World War, currency restrictions were introduced by both belligerent and neutral countries. The frozen official exchange rate remained almost unchanged during the war years, although commodity prices rose and the purchasing power of money fell as a result of inflation. The exchange rate has lost its active role in economic relations. This was due not only to currency restrictions, but also to the peculiarities of lending and foreign trade financing:
Taking into account the lessons of inter-allied debts that arose as a result of the First World War and after it, the United States refused to provide loans and preferred military supplies under Lend-Lease, i.e. for rent, amounting to about 50 billion dollars, including 30 billion to Great Britain and the countries of the British Commonwealth of Nations and 10 billion dollars to the USSR. After the war, the United States determined an amount of compensation for the USSR that was much greater than for other countries;
The source of payment for the import of civilian consumer goods was a long-term loan;
The payment currency was usually the currency of the debtor country without the right to convert it into gold and foreign currencies. In this way, Great Britain paid for supplies of raw materials and food with a number of countries, especially dependent ones. As a result, the problem of sterling holdings (deposits in foreign banks) arose, reflecting Great Britain's debt to other countries;
In war conditions, as always, the importance of gold as world money increased. Military-strategic and scarce goods could only be purchased for this currency metal. Therefore, international payments were partially carried out in gold. Before the introduction of Lend-Lease in 1943, Great Britain paid for the supply of a number of goods from the United States in gold, which led to its pumping into the American Treasury. The United States paid for supplies of raw materials and food from Latin American countries with gold, which was deposited in the Federal Reserve Bank of New York and, after the war, was used by these countries to purchase American goods. The USSR also paid for the import of goods in gold.
Nazi Germany spent almost all of its gold reserves in preparation for war, which officially amounted to only 26 tons in September 1938, against 12 thousand tons in the USA and 3.6 thousand tons in Great Britain. Formally denying the role of gold as a currency metal, the German fascists seized 1.3 thousand tons of the yellow metal from the central banks of the occupied countries. During the war, Nazi Germany, in addition to direct robbery, used monetary and financial methods to rob the occupied countries:
The release of unsecured military occupation money, which formally paid for the supply of raw materials and food from these countries to Germany;
The overvalued exchange rate of the mark (66% to the French franc, 50% to the Belgian franc, 42% to the Dutch guilder) allowed Germany to buy goods in these countries for next to nothing;
Currency clearing: Germany imported goods, recording the amount of debt in clearing accounts, which created a huge debt (42 billion marks by the end of the war) in relation to dependent countries.
The crisis of the world monetary system and the creation of the Bretton Woods system
The Second World War led to a deepening crisis of the Genoese monetary system. The development of a project for a new world monetary system began during the war years (in April 1943), as countries feared shocks similar to the currency crisis after the First World War and in the 30s. Anglo-American experts working since 1941 rejected the idea of a return to the gold standard from the very beginning. They sought to develop the principles of a new world monetary system capable of ensuring economic growth and limiting the negative socio-economic consequences of economic crises. The desire of the United States to consolidate the dominant position of the dollar in the world monetary system was reflected in the plan of G.D. White (Chief of the Division of Currency Research, US Treasury Department).
As a result of long discussions on the plans of G.D. White and J.M. Keynes (Great Britain) was formally defeated by the American project, although Keynesian ideas of interstate currency regulation were also the basis of the Bretton Woods system.
Both currency projects are characterized by common principles:
Free trade and capital movement;
Balanced balances of payments, stable exchange rates and the global monetary system as a whole;
Gold exchange standard;
Creation of an international organization to monitor the functioning of the world monetary system, for mutual cooperation and to cover the balance of payments deficit.
At the UN Monetary and Financial Conference in Bretton Woods (USA) in 1944, the rules for organizing world trade, currency, credit and financial relations were established and the third world monetary system was formalized. The Articles of Agreement (IMF Charter) adopted at the conference defined the basic principles of the Bretton Woods monetary system: in particular, a gold exchange standard was introduced, based on gold and two reserve currencies - the US dollar and the pound sterling. The Bretton Woods agreement provided for four forms of use of gold as the basis of the world monetary system:
Gold parities of currencies were preserved and their fixation was introduced in the IMF;
Gold continued to be used as an international means of payment and reserve;
Relying on its increased monetary and economic potential and gold reserves, the United States equated the dollar to gold in order to secure its status as the main reserve currency;
To this end, the US Treasury continued to exchange the dollar for gold to foreign central banks and government agencies at the official price established in 1934, based on the gold content of its currency ($35 per 1 troy ounce, equal to 31.1035 g).
The introduction of mutual convertibility of currencies was envisaged. Currency restrictions were subject to gradual abolition, and their introduction required the consent of the IMF. The exchange rate relationship between currencies and their convertibility began to be carried out on the basis of fixed currency parities, expressed in dollars. Devaluation of more than 10% was allowed only with the permission of the Fund. A regime of fixed exchange rates was established: the market exchange rate could deviate from parity within narrow limits (+/-1% under the IMF Charter and +/-0.75% under the European Monetary Agreement). To maintain limits on exchange rate fluctuations, central banks were required to conduct foreign exchange intervention in dollars.
For the first time in history, the international monetary and credit organizations IMF and IBRD were created. The IMF provides loans in foreign currency to cover balance of payments deficits in order to support unstable currencies, monitors compliance by member countries with the principles of the global monetary system, and ensures foreign exchange cooperation between countries. Under US pressure, the dollar standard was established within the framework of the Bretton Woods system - a world monetary system based on the dominance of the dollar. The dollar, the only currency convertible into gold, became the basis of currency parities, the predominant means of international payments, foreign exchange intervention and reserve assets. Thus, the United States established a monopoly currency hegemony, pushing aside its long-time competitor, Great Britain. The pound sterling, although due to historical tradition it was also assigned the role of a reserve currency, became extremely unstable. The United States used the dollar's status as a reserve currency to cover its balance of payments deficit with the national currency. The specificity of the dollar standard within the Bretton Woods system was to preserve the connection between the dollar and gold. The United States, of two ways to stabilize the exchange rate - narrow limits of its fluctuations or conversion of the dollar into gold - preferred the second. Thus, they entrusted their partners with the responsibility of maintaining fixed rates of their currencies against the dollar through foreign exchange intervention. As a result, US pressure on foreign exchange markets increased.
The dominance of the United States in the Bretton Woods system was due to the new balance of power in the world economy. In 1949, the United States concentrated 54.6% of capitalist industrial production, 33% of exports, and almost 75% of gold reserves. The share of Western European countries in industrial production fell from 38.3% in 1937 to 31% in 1948, and in the export of goods - from 34.5 to 28%. The gold reserves of these countries decreased from 9 billion to 4 billion dollars, which was 6 times less than that of the United States ($24.6 billion), and their sizes fluctuated sharply across countries. Great Britain, serving 40% of international trade with its currency, had only 4% of the official gold reserves of the capitalist world. The foreign economic expansion of Germany's monopolies was combined with an increase in the country's gold and foreign exchange reserves (from 28 million dollars in 1951 to 2.6 billion in 1958). In order to overcome the crisis, the International Monetary and Financial Conference met in Bretton Woods (USA) in 1944, at which an intergovernmental institution under the UN was created to regulate monetary relations - the International Monetary Fund (IMF). In accordance with the IMF charter, the basic principles of the new monetary system, which was called Bretton Woods, were defined. In contrast to the gold standard, it is based on a permanent system of the gold and exchange standard, which in its further development was transformed into a system of the gold-dollar standard. The Bretton Woods currency system functioned until the mid-1970s and played an important role in deepening the international division of labor, internationalization of production, and intensive development of foreign economic relations.
The basic principles of the functioning of the Bretton Woods monetary system were reduced to these fundamental ones:
The new system retained the role of gold as a general equivalent, a means of payment and a unit of account in international circulation. The text of the Bretton Woods Agreement (Article IV, Section I of the IMF Charter) stated: “The parities of the currencies of all participating countries must be expressed in gold, which acts as a common equivalent, as well as in US dollars for its gold content as of July 1, 1944. " However, in fact this provision of the currency agreement was not adhered to. Among the currencies of countries that were members of the IMF, only the US dollar retained external convertibility (for the central banks of other countries) into gold. This was its fundamental difference from all other currencies that did not have such convertibility. Due to the fact that the parities of almost all currencies were fixed by the IMF in US dollars, their connection with monetary goods was carried out through the “gold - dollar - national currencies” system. In this unification, the dollar acted as a sign of gold and a type of world money;
One of the requirements of the Bretton Woods monetary system, like the gold standard system, was compliance with the principle of fixed exchange rates, which was essential for the development of foreign trade. Official exchange rates were established by determining their gold content (price scale) and, accordingly, were firmly fixed against the dollar. They could not be rejected by more than 1% in both directions without the appropriate consent of the IMF;
The dollar, operating under the gold standard regime, was equated to gold at a certain parity based on fixing the market price for gold: the contents of the dollar were equal to 0.888 grams of gold; the price of one ounce (31.1 g) of gold is $35;
An important norm of the Bretton Woods system was the ban on the free (private) purchase and sale of gold. These operations could only be carried out at the level of central banks on the basis of a fixed price - $35 per ounce. This rule was aimed at ensuring appropriate stabilization of the monetary system.
So, this system is a system of strict currency regulations, the functional regulation and control over compliance with which was carried out by the IMF. If one or another country lost the opportunity to maintain the exchange rate of its currency against the dollar within the established fluctuation limits (±1%), it could resort to the following actions:
Use a share of your gold and foreign exchange reserves to carry out stabilizing operations on the foreign exchange market;
Refer to targeted loans that were provided from the IMF special fund;
Carry out devaluation of your own monetary unit. A change in the value (price scale) of a monetary unit of more than 10% could be carried out only with the appropriate sanction of the IMF.
Over a long period, the effectiveness of the Bretton Woods system “gold - dollar - national currency” was ensured by a high level of stability and trust in the dollar, which served as an international means of payment and reserve currency. This trust was based on the fact that, unlike all other currencies, the dollar retained anti-inflationary immunity in the foreign exchange (external) market, which was guaranteed by its convertibility into gold for central banks. This convertibility was ensured by the accumulation by the United States of a significant share (over 70% in the first post-war years) of centralized gold reserves. In 1949, US centralized gold reserves were valued at $24.6 billion, which was 3.15 times the total dollars held in foreign banks. One should also take into account the extremely high share of the United States in world trade and capital exports, as well as the long-term deficit-free balance of payments of this country. Under these conditions, the dollar served as the reserve currency of the Bretton Woods system. The dollar was believed to be the same as gold, and even better than gold.
In the late 60s - early 70s, the situation changed significantly: the United States largely lost its competitive advantages in the world market, a balance of payments deficit arose, inflationary processes began to develop, and gold reserves sharply decreased. In 1971, their value was $11.1 billion. This amount was 6 times less than the dollar supply that was in interstate circulation. There was a massive rush for gold as a more stable monetary asset and a corresponding abandonment of the dollar. A double price for gold emerged: the official one - $35 per ounce and the market price, which was several times higher than the official one.
In this situation, the United States has, in essence, completely lost its ability to exchange dollars for gold at a fixed price and thus maintain its function as an international reserve currency. Determining this, on August 15, 1971, President R. Nixon decided to end the convertibility of the dollar into gold. The departure from one of the defining principles of the Bretton Woods system meant its virtual collapse and a corresponding change in forces in the world economy. In contrast to the US monopoly that was dominant in the first post-war decades, in the late 60s and early 70s three centers of global economic rivalry emerged - the USA, Western Europe and Japan. As a consequence, polycentrism in the actual alignment of economic forces in the world economy came into conflict with monocentrism in the sphere of international monetary relations based on the monopoly position of the dollar. The crisis of the Bretton Woods system gave rise to many projects for its reform: from the creation of a collective reserve currency, the issuance of a world currency that would be backed by gold and goods, to a return to the gold standard.
Purposes of creation and principles of the Bretton Woods monetary system
The goals of creating the Bretton Woods monetary system were:
Restoring extensive free trade;
Establishing a stable equilibrium in the international exchange system based on a system of fixed exchange rates;
Transferring resources to states to counter temporary difficulties in the external balance.
The Bretton Woods monetary system was based on the following principles:
Fixed exchange rates between the currencies of the participating countries and the leading currency have been established;
The exchange rate of the leading currency is fixed to gold;
Central banks maintain a stable exchange rate of their currency against the leading (within +/- 1%) currency through foreign exchange interventions;
Changes in exchange rates are carried out through devaluation and revaluation;
The organizational unit of the system is the IMF (International Monetary Fund) and the IBRD (International Bank for Reconstruction and Development), which are designed to develop mutual monetary cooperation between countries and help reduce the balance of payments deficit.
Venue of the UN Bretton Woods Financial Conference
During the difficult period of wartime, the United Nations Monetary and Financial Conference, widely known as the Bretton Woods Conference, took place in Bretton Woods (New Hampshire, USA). The conference was held in the comfortable Mount Washington Hotel from July 1 to July 22, 1944. The conference was attended by 730 delegates from 44 states, participants in the anti-Hitler coalition. The purpose of the conference was to regulate international monetary and financial relations after the end of World War II, and the result was the creation of a new world monetary system (called Bretton Woods and replacing the outdated Genoese one) and two international institutions - the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD or World Bank).
44 states took part in the Bretton Woods Conference in 1944:
Australia;
Belgium;
Bolivia;
Brazil;
Great Britain - the delegation was headed by the British economist, Lord John Maynard Keynes (1st Baron Keynes CB (eng. John Maynard Keynes, 1st Baron Keynes; June 5, 1883, Cambridge - April 21, 1946, Tilton estate, Sussex; English economist, founder of the Keynesian movement in economic theory. The economic movement that emerged under the influence of the ideas of John Maynard Keynes was subsequently called Keynesianism. Considered one of the founders of macroeconomics as an independent science. In addition, Keynes created an original theory of probability, not related to the axiomatics of Laplace, von Mises or Kolmogorov, based on the assumption that probability is a logical rather than a numerical relation);
Venezuela;
Guatemala;
Honduras;
Dominican Republic;
Iceland;
China - the delegation was headed by the Chinese statesman, Generalissimo Chiang Kai-shek (English Chiang Kai-shek, Chinese trad. 蔣介石, exercise 蒋介石, pinyin: Jiǎng Jièshí, pal.: Jiang Jieshi; October 31, 1887 - April 5, 1975; military and Chinese politician who led the Kuomintang in 1925 after the death of Sun Yat-sen; President of the Republic of China, Marshal and Generalissimo);
Colombia;
Costa Rica;
Liberia;
Luxembourg;
Mexico - the delegation was headed by Eduard Suarez;
Netherlands;
Nicaragua;
Norway;
New Zealand;
Paraguay;
Salvador;
United States of America - the delegation was led by the head of the monetary research department of the US Treasury Department, Harry Dexter White (October 9, 1892 - August 16, 1948; American economist, representative of the US Treasury Department at the Bretton Woods Conference. In particular, White was the author project to create the International Monetary Fund a week after Pearl Harbor, and also participated in the creation of the World Bank - the main institutions of the Washington Consensus.White testified and defended his reputation before the House Un-American Activities Committee in August 1948. Three days after his testimony, White died of a heart attack at his summer home in Fitz William, N.H. Several sources of information, particularly FBI and Soviet archival documents, indicate that he passed classified information to the Soviet Union);
Union of Soviet Socialist Republics - the delegation was headed by Deputy Minister of Foreign Trade Mikhail Stepanov;
Uruguay;
Philippines;
France - the delegation was led by a center-left politician, Deputy Minister of Finance Pierre Mendès France (January 11, 1907, Paris, - October 18, 1982, Paris; French center-left politician, held important government posts in the Third and the Fourth Republic. From a Judeo-Portuguese (Sephardic) family. In 1932–1940 - a member of the National Assembly, in 1938 - Deputy Minister of Finance in the government of Leon Blum. At the beginning of World War II, Mendes-France voluntarily joined the French Air Force, and from 1942 (after two escapes - from German captivity, and then from a prison in Morocco) he served as a military pilot in the aviation of “Fighting France.” As a member of the Radical Party, Pierre Mendes-France became the leader of the cabinet in 1954. He concluded the peace that ended the Indochinese War war and began the process of transferring independence to Morocco and Tunisia.Pierre Mendès-France was the leader of the left wing of the radical party, which was opposed by the conservative wing under the leadership of Edgar Faure. In 1959 he left this party, later moving to the United Socialist Party);
Czechoslovakia;
Yugoslavia;
Union of South Africa;
Ecuador;
Ethiopia.
The conference was chaired by US Secretary of the Treasury Henry Morgenthau (English Henry Morgenthau; American statesman. Born in New York, USA. Secretary of the Treasury from 1934 to 1945. Known as the author of the Morgenthau Plan, proposed by the United States in 1944 to transform the post-war Germany into a number of small, industrially and militarily weakened states);
Problems of the Bretton Woods monetary system
Devaluations of Western European currencies. The economic superiority of the United States and the weakness of its competitors determined the dominant position of the dollar, which was in universal demand. The basis of dollar hegemony was also the “dollar famine” - an acute shortage of dollars caused by the balance of payments deficit, especially in settlements with the United States, and the lack of gold and foreign exchange reserves. It reflected in a concentrated form the difficult monetary and economic situation of the countries of Western Europe and Japan, their dependence on the United States, and dollar hegemony. The balance of payments deficit, the depletion of official gold and foreign exchange reserves, and the “dollar famine” led to increased currency restrictions in most countries, except the USA, Canada, and Switzerland. Convertibility of currencies was limited. The import and export of currency without the permission of currency control authorities was prohibited. The official exchange rate was artificial. Many countries in Latin America and Western Europe practiced multiple exchange rates - differentiation of exchange rates between currencies by type of transaction, product group and region.
Due to the instability of the economy, the crisis of the balance of payments, and increased inflation, the exchange rates of Western European currencies against the dollar decreased: the Italian lira by 33 times, the French franc by 20 times, the Finnish mark by 7 times, the Austrian schilling by 5 times, the Turkish lira by 2 times , pound sterling by 80% for 1938-1958. “Exchange rate distortions” arose - a discrepancy between market and official rates, which was the cause of numerous devaluations. Devaluation is an official reduction in the exchange rate of paper money in relation to gold (silver or foreign currency) or a decrease in the gold content of a monetary unit, and sometimes accompanied by the exchange of old banknotes for new ones. Among them, a special place is occupied by the massive devaluation of currencies in 1949, which had a number of features. This depreciation was a manifestation of a local currency crisis that arose under the influence of the global economic crisis, which in 1948-1949. struck mainly the United States and Canada and had a painful impact on the war-stricken economies of Western Europe.
The devaluation of 1949 was carried out to a certain extent under pressure from the United States, which used the appreciation of the dollar to encourage the export of its capital and the purchase of cheap goods and enterprises in Western European countries and their colonies. With the revaluation (the reverse process of devaluation) of the dollar, the dollar debt of Western European countries increased, which increased their dependence on the United States. The rise in the dollar exchange rate did not affect the exports of the United States, which occupied a monopoly position in world markets at that time. The exchange rate of national currencies was reduced directly against the dollar, since, in accordance with the Bretton Woods agreement, fixed exchange rates to the American currency were established, and some currencies did not have gold parities. The devaluation was carried out under conditions of currency restrictions.
The devaluation was widespread; it covered the currencies of 37 countries, which accounted for 60-70% of world capitalist trade. These include Great Britain, the countries of the British Commonwealth, France, Italy, Belgium, the Netherlands, Sweden, West Germany, and Japan. Only the United States retained the gold content of the dollar, established during the devaluation in 1934, although its purchasing power within the country was halved compared to the pre-war period. The depreciation of exchange rates ranged from 12% (Belgian franc) to 30.5% (currencies of Great Britain, other sterling zone countries, the Netherlands, Sweden, etc.). The depreciation of currencies caused an increase in the cost of imports and an additional rise in prices. As a result of the devaluation of 1949, wholesale prices increased in September 1950 in Austria by 30%, in Great Britain and Finland by 19%, and in France by 14%. The inevitable consequence of devaluations was a decline in living standards.
The United States used the principles of the Bretton Woods system (the status of the dollar as a reserve currency, fixed parities and exchange rates, the conversion of the dollar into gold, the reduced official price of gold) to strengthen its position in the world. Western European countries and Japan were interested in undervaluing their currencies in order to encourage exports and restore their devastated economies. In this regard, the Bretton Woods system contributed to the growth of world trade and production for a quarter of a century. However, the post-war monetary system did not provide equal rights to all its participants and allowed the United States to influence the monetary policy of Western European countries, Japan and other IMF members. The unequal monetary mechanism has strengthened the US position in the world to the detriment of other countries and international cooperation. The contradictions of the Bretton Woods system gradually undermined it.
From American-centrism to polycentrism in the monetary sphere. Economic, energy, and raw materials crises destabilized the Bretton Woods system in the 60s. The change in the balance of power on the world stage has undermined its structural principles. Since the late 60s, the economic, financial, monetary, and technological superiority of the United States over its competitors has gradually weakened. Western Europe and Japan, having strengthened their monetary and economic potential, began to squeeze their American partner. In 1984, the countries of the Common Market accounted for 36.0% of industrial production in OECD countries (USA - 34.3%), 33.7% of exports (USA - 12.7%). The US share of gold reserves decreased from 75% in 1949 to 23%. At the same time, the share of EEC countries in gold reserves increased to 38%, in foreign exchange reserves - to 53% (USA - 10.8%). The dollar is gradually losing its monopoly position in currency relations. The German mark, the Swiss franc, other Western European currencies and the Japanese yen compete with it in the foreign exchange markets and are used as an international means of payment and reserve. If the share of the dollar in official foreign exchange reserves gradually decreased (from 84.5 to 73.1% in 1973-1980), then the share of the German mark (from 6.7 to 14%) and the Japanese yen (from 0 to 3) increased accordingly. .7%), Swiss franc (from 1.4 to 4.1%). The economic and monetary dependence of Western European countries on the United States, characteristic of the first post-war years, has disappeared. With the formation of three centers of partnership and rivalry, a new center of monetary power emerged in the form of the EEC, rivaling the United States and Japan.
From “dollar hunger” to “dollar satiety.” Since the US uses the dollar to finance balance of payments deficits, this has led to a huge increase in its short-term foreign debt in the form of dollar holdings by foreign banks. “Dollar hunger” gave way to “dollar satiety.” An excess of dollars in the form of an avalanche of “hot” money periodically fell on one country or another, causing currency shocks and a flight from the dollar.
During the Second World War and after its end, currency zones were established: sterling and dollar on the basis of the corresponding pre-war currency blocks, the zone of the French franc, Portuguese escudo, Spanish peseta, Dutch guilder. While maintaining the main features of currency blocs, currency zones reflected new phenomena associated with the strengthening of state regulation of monetary, financial and trade relations between their participants:
Interstate agreements have acquired an important role in the design and functioning of currency zones, especially the French franc zone. For example, the Monetary Committee of the Franc Zone (the centralized governing body) coordinates and directs the grouping's monetary and economic policy. Monetary policy for the sterling area was developed and coordinated by the Treasury and the Bank of England;
In contrast to currency blocs, the internal mechanism of currency zones was characterized by a unified monetary and financial regime, a unified system of currency restrictions, a centralized pool of gold and foreign exchange reserves that were kept in the hegemonic country, and a preferential regime for currency payments within the group. The extension of the same exchange controls to all member countries of the currency zone gave it an official character;
International economic agreements between group members were usually concluded by the country leading the zone. The mechanism of currency zones was directed against the expansion of foreign capital. With the crisis of the colonial system, centrifugal tendencies intensified within the currency zones, which subsequently led to the collapse of the sterling, dollar and other zones and significant changes in the monetary and financial mechanism of the French franc zone, which remained in a modified form.
The crisis of the Bretton Woods system
The reasons for the crisis of the Bretton Woods system can be divided into two separate groups - fundamental and additional reasons. Let's take a closer look at them.
This system could only exist as long as US gold reserves could support the conversion of foreign dollars into gold. The collapse of the dollar was predetermined. US gold reserves were melting literally before our eyes: at times 3 tons a day. And this, again, despite all the conceivable and inconceivable measures that the United States took to stop the outflow of gold, to make sure that the dollar was “convertible until it is required to be convertible” (C. De Gaulle). The possibilities for exchanging dollars for gold were limited in every possible way: it could only be carried out at the official level and only in one place - the US Treasury. But the numbers speak for themselves: from 1949 to 1970, US gold reserves fell from 21,800 to 9,838.2 tons - more than half.
General de Gaulle put an end to this “flight from the dollar”, not limiting himself to just declaring the need to eliminate the priority of the dollar. From words, he moved to action, presenting the United States with 1.5 billion US dollars for exchange. A scandal broke out. The United States began to put pressure on France as a NATO partner. And then General de Gaulle went even further, announcing France’s withdrawal from NATO, the liquidation of all 189 NATO bases on French territory and the withdrawal of 35 thousand NATO soldiers. To top it all off, during his official visit to the United States, he presented $750 million in exchange for gold. And the United States was forced to make this exchange at a fixed rate, since all the necessary formalities were observed.
Of course, such a scale of “intervention” could not “bring down the dollar”, but the blow was struck at the most vulnerable place - the “Achilles heel” of the dollar. General de Gaulle created a most dangerous precedent for the United States. Suffice it to say that from 1965 to 1967 alone, the United States was forced to exchange its dollars for 3,000 tons of pure gold. Following France, Germany presented dollars for exchange for gold. But the United States soon took no less unprecedented protective measures, unilaterally abandoning all of its previously accepted international obligations regarding the gold backing of the dollar. In the early 70s, the redistribution of gold reserves finally took place in favor of Europe, and more and more cash and non-cash US dollars participated in international circulation. There were significant problems with international liquidity, as gold production was small compared to the growth of international trade. Confidence in the dollar as a reserve currency was further weakened by the huge US balance of payments deficit. New financial centers emerged (Western Europe, Japan), and their national currencies gradually began to be used as reserve currencies. This led to the US losing its absolute dominant position in the financial world.
The problems of this system were clearly formulated in Triffin's dilemma (paradox): the issue of a key currency must correspond to the gold reserves of the issuing country. Excessive issuance not backed by gold reserves could undermine the convertibility of a key currency into gold, causing a crisis of confidence in it. But the key currency must be issued in quantities sufficient to ensure an increase in the international money supply to service the growing number of international transactions. Therefore, its issue must occur regardless of the size of the limited gold reserves of the issuing country. In the process of developing the system, to partially remove this contradiction, it was proposed to use an artificial reserve tool - Special Drawing Rights. This mechanism still operates today.
Additional reasons for the crisis of the Bretton Woods monetary system
Additional reasons include the following factors:
Instability in the economy. The onset of the currency crisis in 1967 coincided with a slowdown in economic growth;
Increased inflation had a negative impact on the competitiveness of firms. Since different rates of inflation in different countries had different effects on the dynamics of exchange rates, this created the conditions for “exchange distortions”, which encouraged speculative movements of “hot” money;
In the 1970s, speculation exacerbated the currency crisis. An excess of dollars in the form of a spontaneous avalanche of “hot” money periodically fell on one country or another, causing currency shocks and flight from one currency to another;
Instability of national balances of payments. Chronic deficits in some countries (especially the USA, Great Britain) and positive balances in others (Germany, Japan) increased fluctuations in exchange rates;
The inconsistency of the principles of the Bretton Woods system with the changing balance of forces on the world stage. The monetary system, based on national currencies, came into conflict with the internationalization of the world economy. This contradiction intensified as the economic positions of the United States and Great Britain weakened, which repaid the deficit of their balance of payments by issuing national currencies, using their status as reserve currencies. This was contrary to the interests of other countries;
The role of transnational corporations (TNCs) in the currency field: TNCs have huge short-term assets in different currencies, which can significantly exceed the reserves of the central banks of the countries where the corporations operate and, thus, TNCs can elude national control. TNCs, when trying to avoid losses or make profits, participate in currency speculation, giving it a gigantic scope.
Thus, the need gradually arose to revise the foundations of the existing monetary system. Its structural principles, established in 1944, no longer correspond to the real state of affairs. The essence of the crisis of the Bretton Woods system lies in the contradiction between the international nature of international economic relations and the use of national currencies (mainly the US dollar), which are subject to depreciation.
Factors causing the crisis of the Bretton Woods monetary system
Since the late 60s, the crisis of the Bretton Woods monetary system began. Its structural principles, established in 1944, no longer correspond to the conditions of production, world trade and the changed balance of forces in the world. The essence of the crisis of the Bretton Woods system lies in the contradiction between the international nature of the IEO and the use of national currencies subject to depreciation (mainly the dollar) for their implementation. The causes of the crisis of the Bretton Woods monetary system can be represented as a chain of interdependent factors: the economy at the beginning of the currency crisis in 1967, which coincided with the slowdown in economic growth, was extremely unstable and contradictory, plus there was a global cyclical crisis that gripped the Western economy in 1969-1970, 1974- 1975, 1979-1983
Increased inflation had a negative impact on world prices and the competitiveness of firms and encouraged speculative movements of “hot” money. Different rates of inflation in different countries influenced the dynamics of exchange rates, and the decrease in the purchasing power of money created conditions for “exchange rate distortions.” Instability of balances of payments. The chronic deficit of the balance sheets of some countries (especially Great Britain, the USA) and the surplus of others (Germany, Japan) intensified sharp fluctuations in exchange rates, downwards and upwards, respectively. The inconsistency of the principles of the Bretton Woods system with the changed balance of forces on the world stage. The currency system, based on the international use of national currencies subject to depreciation - the dollar and partly the pound sterling, came into conflict with the internationalization of the world economy. This contradiction of the Bretton Woods system intensified as the economic positions of the United States and Great Britain weakened, which repaid the deficit of their balance of payments with national currencies, abusing their status as reserve currencies. As a result, the stability of reserve currencies was undermined.
The right of holders of dollar holdings to exchange them for gold came into conflict with the ability of the United States to fulfill this obligation. Their external short-term debt increased by 8.5 times over 1949-1971, and official gold reserves decreased by 2.4 times. The consequence of the American policy of “deficits without tears” was the erosion of confidence in the dollar. The official price of gold, which served as the basis for gold and currency parities, was lowered in the interests of the United States, and began to deviate sharply from the market price. Interstate regulation of this price turned out to be powerless. As a result, artificial gold parities lost their meaning. This contradiction was aggravated by the persistent refusal of the United States until 1971 to devalue its currency. The regime of fixed parities and exchange rates aggravated “exchange distortions.” Under the Bretton Woods Agreement, central banks were forced to intervene in foreign exchange using the dollar, even to the detriment of national interests. Thus, the United States shifted the responsibility of maintaining the dollar exchange rate to other countries, which aggravated interstate contradictions. Since the IMF Charter allowed only one-time devaluations and revaluations, in anticipation of them, the movement of “hot” money and the speculative game to reduce the exchange rate of weak currencies and to increase the exchange rate of strong currencies intensified. Interstate currency regulation through the IMF turned out to be almost ineffective. Its loans were insufficient to cover even temporary balance of payments deficits and support currencies.
The principle of American-centrism on which the Bretton Woods system was based ceased to correspond to the new balance of power with the emergence of three world centers: the USA - Western Europe - Japan. The US's use of the dollar's status as a reserve currency to expand its foreign economic and military-political expansion and export inflation increased interstate disagreements and contradicted the interests of developing countries. Activation of the Eurodollar market. As the United States covers its balance of payments deficit with its domestic currency, some dollars move to foreign banks, contributing to the development of the Eurodollar market. This colossal market of dollars “without a homeland” ($750 billion, or 80% of the volume of the European market, in 1981 versus $2 billion in 1960) played a dual role in the development of the crisis of the Bretton Woods system. At first, it supported the position of the American currency, absorbing excess dollars, but in the 70s, Eurodollar transactions, accelerating the spontaneous movement of “hot” money between countries, aggravated the currency crisis. The disorganizing role of transnational corporations (TNCs) in the foreign exchange sphere: TNCs have gigantic short-term assets in different currencies, which are more than double the foreign exchange reserves of central banks, elude national control and, in the pursuit of profits, engage in currency speculation, giving it a grand scale. In addition to the general reasons, there were specific ones inherent in individual stages of the development of the crisis of the Bretton Woods system.
Forms of manifestation of the crisis of the Bretton Woods monetary system:
- “currency fever” - the movement of “hot” money, the massive sale of unstable currencies in anticipation of their devaluation and the purchase of currencies that are candidates for revaluation;
- “gold rush” - a flight from unstable currencies to gold and a periodic increase in its price;
Panic on stock exchanges and falling securities prices in anticipation of changes in exchange rates;
Aggravation of the problem of international currency liquidity, especially its quality;
Massive devaluations and revaluations of currencies (official and unofficial);
Active foreign exchange intervention by central banks, including collective intervention;
Sharp fluctuations in official gold and foreign exchange reserves;
Violation of the structural principles of the Bretton Woods system;
Activation of national and interstate currency regulation; strengthening of two trends in international economic and monetary relations - cooperation and contradictions, which periodically develop into trade and currency wars.
Stages of development of the crisis of the Bretton Woods monetary system
The currency crisis developed in waves, hitting one country or another at different times and with different strengths. The development of the crisis of the Bretton Woods monetary system can be divided into several stages.
Devaluation of the pound sterling in November 1967
Due to the deterioration of the country's monetary and economic situation, on November 18, 1967, the gold content and the exchange rate of the pound sterling were reduced by 14.3%. Following the UK, 25 countries, mostly its trading partners, devalued their currencies in varying proportions.
The collapse of the “gold block” and changes in the gold market
Owners of dollars began to sell them for gold. The volume of transactions on the London gold market increased from its usual value of 5-6 tons per day to 65-200 tons (November 22-23, 1967), and the price of gold increased to $41, from the official price of $35 per ounce. Bouts of gold fever led to the collapse of the gold pool in March 1968 and the formation of a dual gold market.
Devaluation of the French franc in August 1969
The detonator of the currency crisis was currency speculation - a game to lower the exchange rate of the franc and increase the exchange rate of the German mark in anticipation of its revaluation. The advance of the mark on the franc was accompanied by political pressure from Bonn on Paris and the outflow of capital from France, mainly to Germany, which caused a reduction in the country's official gold and foreign exchange reserves (from $6.6 billion in May 1968 to 2.6 billion in August 1969). Despite the currency intervention of the Bank of France, the franc fell to the lowest acceptable limit.
Turbulent political events in France, the resignation of Charles de Gaulle, and the refusal of Germany to revalue the mark increased pressure on the franc. On August 8, 1969, the gold content and the franc exchange rate were reduced by 11.1% (foreign exchange rates against the franc increased by 12.5%). At the same time, the currencies of 13 countries on the African continent and Madagascar were devalued.
Revaluation of the German mark in October 1969
On October 24, 1969, the mark rate was increased by 9.3% (from 4 to 3.66 marks per $1) and the floating exchange rate regime was abolished. The revaluation was a concession by Germany to international financial capital: it contributed to the improvement of the balance of payments of its partners, since their currencies were actually devalued. The outflow of “hot” money from Germany replenished the foreign exchange reserves of these countries. For 20 months there was relative calm in the foreign exchange markets, but the causes of the currency crisis were not eliminated.
The crisis of the Bretton Woods system reached its climax in the spring and summer of 1971, when the main reserve currency was at its epicenter. The dollar crisis coincided with a long depression in the United States following the economic crisis of 1969-1970. Under the influence of inflation, the purchasing power of the dollar fell by 2/3 in mid-1971 compared to 1934, when its gold parity was established. The total US current account deficit was $71.7 billion for 1949-1971. The country's short-term external debt increased from 7.6 billion dollars in 1949 to 64.3 billion in 1971, exceeding by 6.3 times the official gold reserve, which decreased during this period from 24.6 billion to $10.2 billion
The crisis of the American currency was expressed in the mass sale of it for gold and stable currencies, and a fall in the exchange rate. Uncontrollably roaming Eurodollars flooded the currency markets of Western Europe and Japan. The central banks of these countries were forced to buy them to maintain the exchange rates of their currencies within the limits established by the IMF. The dollar crisis caused a political form of protests by countries (especially France) against the privilege of the United States, which covered the balance of payments deficit with the national currency. France exchanged $3.5 billion for gold at the US Treasury in 1967-1969. Since the late 60s, the conversion of the dollar into gold has become a fiction: in 1970, 50 billion dollar holdings of non-residents were countered by only 11 billion dollars of official gold reserves. The US took a number of measures to save the Bretton Woods system in the 60s.
Attracting foreign exchange resources from other countries. Dollar balances were partially transformed into direct loans. Swap agreements were concluded ($2.3 billion in 1965, $11.3 billion in 1970) between the Federal Reserve Bank of New York and a number of foreign central banks. Short-term bonds of Ruz were placed in Western European countries.
Collective defense of the dollar. Under US pressure, the central banks of most countries refrained from exchanging their dollar reserves for gold in the US Treasury. The IMF invested part of its gold reserves in dollars, contrary to the Charter. Leading central banks created the gold pool (1962) to support the price of gold, and after its collapse, they introduced a dual gold market on March 17, 1968. Doubling the IMF capital (up to $28 billion) and a general agreement between 10 member countries of the Fund and Switzerland on loans to the Fund ($6 billion), issuing SDRs in 1970 in order to cover the balance of payments deficit.
The United States stubbornly resisted the overdue devaluation of the dollar and insisted on revaluing the currencies of its trading partners. In May 1971, the Swiss franc and the Austrian schilling were revalued and a floating exchange rate was introduced for the currencies of Germany and the Netherlands, which led to an actual depreciation of the dollar by 6-8%. The hidden devaluation suited the United States, since it did not have such a detrimental effect on the prestige of the reserve currency as the official one. To break the resistance of trading rivals, the United States switched to a policy of protectionism. On August 15, 1971, emergency measures were announced to save the dollar: the exchange of dollars for gold for foreign central banks (the “gold embargo”) was stopped, and an additional 10% import duty was introduced. The United States has embarked on the path of a trade and currency war. The influx of dollars into Western European countries and Japan caused a massive transition to floating exchange rates and thereby a speculative attack on the dollar by their strengthened currencies. France introduced a dual currency market following the example of Belgium, where it had operated since 1952. Western European countries began to openly oppose the privileged position of the dollar in the world monetary system.
Washington Agreement December 18, 1971
But the United States did not commit to restoring the convertibility of the dollar into gold and participating in foreign exchange intervention. Thus, they preserved the privileged status of the dollar, which is now not materially supported. The dollar devaluation law was signed by President Richard Nixon on April 3 and approved by Congress on April 26, 1972. The increase in the price of gold was legalized after the new dollar parity was registered with the IMF and notified to member countries on May 8, 1972. It should be noted that the time lag between the period making a decision to change the official exchange rate and its legal registration was of practical importance for international settlements, since the implementation of protective clauses took into account the normative act. The devaluation of the dollar caused a chain reaction: by the end of 1971, 96 of the 118 IMF member countries had set new exchange rates to the dollar, with 50 currencies appreciating to varying degrees. Taking into account the varying degrees of appreciation of the currencies of other countries and their share in US foreign trade, the weighted average value of the dollar devaluation was 10-12%.
The Washington Agreement temporarily smoothed over the differences, but did not eliminate them. In the summer of 1972, a floating exchange rate for the pound sterling was introduced, which meant its actual devaluation by 6-8%. This complicated the UK's relations with the EEC, since it violated the agreement of the Common Market countries (dated April 24, 1972) to narrow the limits of exchange rate fluctuations to +/-1.125%. The UK was forced to compensate the owners of sterling holdings and introduce a dollar and, from April 1974, a multi-currency clause as a guarantee of maintaining their value. Foreign exchange restrictions were strengthened to curb capital flight abroad. The pound sterling has lost its reserve currency status.
In February-March 1973, a currency crisis hit the dollar again. The impetus was the instability of the Italian lira, which led to the introduction of a dual currency market in Italy (from January 22, 1973 to March 22, 1974), following the example of Belgium and France. The gold rush and the rise in the market price of gold once again exposed the weakness of the dollar. However, unlike 1971, the United States failed to achieve a revaluation of the currencies of Western Europe and Japan. On February 12, 1973, the dollar was devalued again by 10% and the official price of gold was increased by 11.1% (from 38 to 42.22 dollars per ounce). The massive sale of dollars led to the closure of leading foreign exchange markets (from March 2 to March 19). The new consensus - the transition to floating exchange rates from March 1973 - corrected the “exchange distortions” and relieved tension in the foreign exchange markets. The six Common Market countries have abolished the external limits on the agreed fluctuations of their currencies (the “tunnel”) against the dollar and other currencies. The decoupling of the “European currency snake” from the dollar led to the emergence of a kind of currency zone led by the German mark. This indicated the formation of a Western European zone of monetary stability as opposed to the unstable dollar, which accelerated the collapse of the Bretton Woods system.
The use of foreign loans and borrowings from the IMF to support currencies;
The struggle between two trends in international relations - cooperation and separate actions (even trade and currency “wars”).
The relationship between the crises of 1967-1973, 1973 and 1974-1975.
The rise in oil prices at the end of 1973 led to an increase in the current account deficits of industrialized countries. The currencies of Western Europe and Japan fell sharply. There was a temporary appreciation of the dollar, as the United States was better endowed with energy resources than its competitors, and the positive impact of its two devaluations on the country's balance of payments became apparent, although not immediately. The currency crisis intertwined with the global economic crisis in 1974-1975, which increased fluctuations in exchange rates (up to 20% per year in the late 70s). The dollar fell throughout the 70s, with the exception of short periods of its appreciation. By covering the current account deficit with the national currency, the United States contributed to the pumping of dollars into international circulation (8.9 billion in 1950, 292.5 in 1980). As a result, other countries became “reluctant creditors” to the United States. In the 19th century England used a similar monetary and financial method, taking advantage of the privileged position of the pound sterling in international monetary relations.
Features and consequences of the crisis of the Bretton Woods monetary system
Between the currency crises of 1929-1933. and 1967-1976 there are certain similarities. These structural crises of the world monetary system affected all countries, became protracted and led to a violation of its principles. However, the crisis of the Bretton Woods system has a number of features.
The interweaving of cyclical and special currency crises. The crisis of the Bretton Woods monetary system was combined not only with global economic crises, but also with periodic revival and recovery of the economy.
TNCs concentrated 40% of industrial production, 60% of foreign trade, 80% of the developed technology of the West. Large foreign exchange assets and the scale of Eurocurrency, especially Eurodollar, operations of TNCs gave the crisis of the Bretton Woods system enormous scope and depth.
The disorganizing role of the United States. Using the dollar's privileged position as a reserve currency to cover its balance of payments deficit, the United States flooded the countries of Western Europe and Japan with dollars, causing disruptions in their economies, increased inflation, and currency instability, which deepened interstate contradictions.
The emergence of three centers of power. The structural principles of the Bretton Woods system, established during the period of undivided US dominance, no longer correspond to the new balance of power in the world. Western European countries, especially the EU, are creating their own center of monetary power to counter the hegemony of the dollar, and Japan is using the yen as a reserve currency in the Asian region. The wave-like development of the currency crisis, as evidenced by the stages of its development discussed above. Massive devaluations of currencies and periodic revaluations of individual currencies. Comparison of the devaluations of the 60-70s and 1949 allows us to identify their differences in the following indicators:
Scale: 1967-1973 repeated devaluations affected hundreds of currencies (compared to 37 in 1949), including the dollar, the reserve currency, twice;
Size: in the 60-70s, the size of devaluations (on average 8-15%) was significantly smaller than in 1949 (up to 30.5%) and after the First World War (up to 80%). The predominance of small devaluations without a margin of safety is due to countries' fear of causing a chain reaction due to the increased internationalization of economic relations;
Duration: in the 60-70s, devaluations lasted for a number of years, as in the 30s, and in 1949 this event was carried out almost simultaneously in 37 countries;
Procedure: devaluations are carried out not only legally, but also actually in connection with revaluation in conditions of floating exchange rates.
And in 1949, during the period of post-war devastation, the question of revaluation was not even raised and the regime of fixed exchange rates prevailed. The structural nature of the crisis of the world monetary system. With the collapse of the Bretton Woods system, its structural principles were abolished: the exchange of dollars for gold was stopped, the official price of gold and gold parities were abolished, interstate payments in gold were stopped, a floating exchange rate regime was introduced, the dollar and pound sterling officially lost their status as reserve currencies. The German mark and the Japanese yen began to assume this role. They began to use the original forms of world credit money - SDR, ECU. The influence of state currency regulation. On the one hand, it contributes to the aggravation of contradictions in the monetary sphere; on the other hand, regulation at the national and interstate levels in order to mitigate the consequences of the currency crisis and find a way out of it through currency reform.
The currency crisis, disorganizing the economy, complicating foreign trade, increasing the instability of currencies, gives rise to severe socio-economic consequences. This is manifested in increased unemployment, wage freezes, and rising prices. Revaluation is accompanied by a decrease in employment in export industries, and devaluation, making imports more expensive, contributes to rising prices in the country. The centrifugal tendency, reflecting interstate disagreements, is opposed by the tendency towards monetary cooperation.
Key dates in the development of the crisis of the Bretton Woods monetary system
March 17, 1968. A dual gold market has been established. The price of gold in private markets is set freely according to supply and demand. According to official transactions for the central banks of countries, the convertibility of the dollar into gold remains at the official rate of 35 dollars per 1 troy ounce.
August 15, 1971. US President Richard Nixon announced a temporary ban on converting the dollar into gold at the official rate for central banks.
December 17, 1971. Devaluation of the dollar against gold by 7.89%. The official price of gold increased from 35 to 38 dollars per 1 troy ounce without the resumption of the exchange of dollars for gold at this rate.
March 16, 1973. The Jamaican International Conference subjected exchange rates to the laws of the market. Since that time, exchange rates are not fixed, but change under the influence of supply and demand. The system of fixed exchange rates ceased to exist.
January 8, 1976. After a transition period during which countries could try different models of the monetary system, at a meeting of ministers of the IMF member countries in Kingston, Jamaica (Jamaica Conference), a new agreement on the structure of the international monetary system was adopted, which took the form of amendments to the IMF charter. A model of free mutual conversions was formed, which was characterized by fluctuations in exchange rates. The Jamaican currency system operates in the world to this day (2011), although in light of the global crisis of 2008-2009, consultations began on the principles of a new world monetary system (G20 Anti-Crisis Summit, G-20 London Summit).
Sources and links
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Bretton Woods Armed Forces 1944-1978
Reasons for creation:
1. The introduction of the gold exchange standard, which was based on gold and the motto - the currency of 2 countries: the US dollar and the pound sterling. Recently, the pound sterling has lost its position in the Sun in favor of the US dollar. $35 = 1 troy ounce. This continued until 1971.
2. Exchange rates of currencies and their convertibility began to be carried out on the basis of fixed parities, expressed in US dollars. All countries were required to maintain the exchange rate of their national currency within 1% fluctuations relative to parity.
3. Creation of international monetary and credit organizations: IMF and International Bank for Reconstruction and Development.
4. The US dollar becomes the only reserve currency.
Prerequisites for appearance: The Second World War led to a deepening crisis of the Genoese monetary system. The development of a project for a new world monetary system began during the war years (in April 1943), as countries feared shocks similar to the currency crisis after the First World War and in the 30s. Anglo-American experts working since 1941 rejected the idea of a return to the gold standard from the very beginning. They sought to develop the principles of a new world monetary system capable of ensuring economic growth and limiting the negative socio-economic consequences of economic crises.
BRETTON WOODS MONETARY SYSTEM - an international monetary system that was formed after the Second World War and was based on the adaptation of national currency systems to the currency systems of the leading states at that time, primarily to the US national system. The system was established as a result of the Bretton Woods Conference (July 1 to 22, 1944). The name comes from the Bretton Woods resort in New Hampshire, USA. The system gave rise to organizations such as the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF).
At the UN conference in Bretton Woods (USA) in July 1944, the following were put forward: principles of the world armed forces:
- gold was recognized as the basis of the Armed Forces;
- the main currencies are the American dollar and the British pound sterling;
- fixed parities of all currencies were established in relation to the dollar, and through it - to gold and other currencies, market fluctuations around fixed rates of +1% were allowed;
- to regulate the armed forces, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) were created;
- systems of currency restrictions were abolished, and the convertibility of national currencies was restored.
This system was characterized by the fact that it ensured a combination of national interests with international requirements: the relative independence of states in pursuing domestic policies was ensured by a system of international credit.
Historical merits of the system (advantages):
1. By the end of the 60s. The countries of the world have reached such a standard of living and volume of consumed goods that they enjoy to this day.
2. The world economy has gained experience in m/n regulation with the help of the IMF and the International Bank for Reconstruction and Development.
Reasons for the collapse (cons):
1. In 1971 The exchange of US dollars for gold was stopped.
2. Dollar hunger gave way to dollar satiety.
The crisis of the Bretton Woods monetary system. Since the late 60s, the crisis of the Bretton Woods monetary system began. Its structural principles, established in 1944, no longer correspond to the conditions of production, world trade and the changed balance of forces in the world. The essence of the crisis of the Bretton Woods system lies in the contradiction between the international, global nature of IEO and the use of national currencies subject to depreciation (mainly the dollar) for their implementation.
Causes of the crisis of the Bretton Woods monetary system.
1. The instability and contradictions of the US economy. The onset of the currency crisis in 1967 coincided with a slowdown in economic growth;
2. Increased inflation had a negative impact on world prices and the competitiveness of firms and encouraged speculative movements of “hot” money. Different rates of inflation in different countries influenced the dynamics of exchange rates, and the decrease in the purchasing power of money created conditions for “exchange rate distortions”;
3. In the 70s, speculative operations, accelerating the spontaneous movement of “hot” money between countries, aggravated the currency crisis. An excess of dollars in the form of an avalanche of “hot” money periodically fell on one country or another, causing currency shocks and flight from one currency to another;
4. Instability of national balances of payments. Chronic deficits in some countries (especially the USA, Great Britain) and positive balances in others (Germany, Japan) intensified sharp fluctuations in exchange rates;
5. The inconsistency of the principles of the Bretton Woods system with the changed balance of forces on the world stage. The monetary system, based on the use of national currencies, came into conflict with the internationalization of the world economy. This contradiction intensified as the economic positions of the United States and Great Britain weakened, which repaid the deficit of their balance of payments by issuing national currencies, using their status as reserve currencies. This was especially contrary to the interests of developing countries.
6. The role of transnational corporations (TNCs) in the foreign exchange sector: TNCs have gigantic short-term assets in different currencies, which can significantly exceed the foreign exchange reserves of the central banks of the countries where they operate. These amounts escape national control and, in pursuit of profits, they participate in currency speculation, giving it gigantic scope.
Forms of manifestation of the crisis
· Aggravation of the problem of international currency liquidity;
· “Currency rush” - massive sale of unstable currencies in anticipation of their devaluation, buying up currencies that are candidates for revaluation;
· “Gold Rush” - a flight from unstable currencies to gold, a spontaneous increase in its price;
· Sharp fluctuations in official gold and foreign exchange reserves;
· Panic on stock exchanges and falling securities prices in anticipation of changes in exchange rates;
· Activation of national and interstate currency regulation;
· Massive devaluations and revaluations of currencies (official and unofficial);
· Active foreign exchange interventions by central banks, including those coordinated between several countries;
· Use of foreign loans and borrowings from the IMF to support currencies;
· The struggle between two trends in international relations - cooperation and separate actions (even trade and currency “wars”).
The currency crisis developed in waves, hitting one country or another at different times and with different strengths. The development of the crisis of the Bretton Woods monetary system can be divided into several stages.
ü Devaluation of the pound sterling;
ü Gold rush, collapse of the gold pool, formation of a double gold market;
ü Devaluation of the French franc;
ü Revaluation of the German brand;
ü Dollar devaluation in December 1971
The US took a number of measures to save the Bretton Woods system in the 1960s:
1.Borrowing from other countries.
2. Collective defense of the dollar.
3.Doubling the IMF capital
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Bretton Woods monetary system
In 1944, a conference was held in Bretton Woods (USA), in which Great Britain, the USA and 42 other countries took part. By its decision, the International Monetary Fund was created, which began operating on March 1, 1947, consisting of 30 countries, in 2000 there were more than 180.
ensuring that member states comply with agreed rules of conduct in international trade and finance and maintain the stability of exchange rates;
provide borrowed funds to its members in the event of a temporary deficit in the balance of payments.
The IMF was created to perform the following functions:
The developed mechanism for the functioning of the new international system was based mainly on the plan of the American delegation and reflected the dominant position of the United States in the world economy.
Bretton Woods monetary system was a gold-exchange, and essentially gold-dollar standard with a fixed exchange rate.
The principles of its functioning were as follows: 1. The functions of world money were assigned to gold, the share of which in the total official reserves of the countries of the world, i.e. in the structure of international liquidity was about 50% at that time, the share of the pound sterling was about 40 and the dollar was 8-10%. 2. The price of gold was determined in dollars at the rate of 35 dollars per 1 troy ounce. Thus, $1 = 0.888671 grams of pure gold. According to many authoritative Western and domestic economists, the dollar was overvalued. This allowed the United States to profitably place its capital in other countries in conditions of acute post-war commodity shortages and high global demand to export its goods at inflated prices. 3. The United States pledged to maintain this fixed price per ounce of gold and was willing to exchange any amount of American dollars for gold without restrictions or limits. The official US gold reserve was $20 billion (75% of the world reserve), and it was at least 2 times the number of dollars held by non-residents. 4. Other countries had to fix the price of their currencies in gold through the dollar. To do this, the exchange rate of the national currency to the dollar was fixed (for example, 1:4), and then its gold content was determined - 0.888671 g: 4 = 0.222168 g. The gold parity of the national currency had nothing to do with the gold reserves of a given country, but only indicated the attitude towards the dollar. 5. IMF member countries were required to maintain the exchange rate of their national currencies within a fluctuation range of 1%. Within the established fluctuation corridor, the exchange rate was determined by supply and demand. When the exchange rate deviated from parity in one direction or another, central banks had to intervene: buy their currency or sell it for foreign currencies. In practice, the dollar was the only intervention currency, because other currencies remained irreversible for a long time and the system was a gold-dollar standard. 6. Change in currency parity, i.e. devaluation or revaluation of up to 10% was carried out by countries independently. A change in parity above 10% was possible only with the permission of the IMF. Thus, the Bretton Woods system was an adjustment system of fixed exchange rates, at least in its original version. It combined exchange rate stability with some flexibility. Following the transition period following the end of World War II, IMF member countries abolished all restrictions on the convertibility of their currencies by the early 1960s. They were prohibited from establishing additional trade barriers, otherwise currency convertibility would not be of much importance. Existing trade restrictions were to be gradually removed through multilateral negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT). Restrictions were allowed on the international movement of liquid capital to protect national currencies. Current account deficits were paid from official gold and foreign exchange reserves or covered by IMF loans, which were provided for an average period (3-5 years) and were intended exclusively to repay current account deficits.
International Bank for Reconstruction and Development(IBRD) and other branches of the World Bank that were formed later.
In 1956 it was created International Finance Corporation(IFC) to stimulate private investment in the economies of Western Europe, and then developing countries and countries with economies in transition.
In 1960 it was created International Development Association(IDA) to provide long-term, low-interest loans to the poorest countries.
Long-term development assistance was provided by:
Borrowings from the IMF. When joining the IMF, each country was assigned a quota, the size of which depended on its economic strength and the volume of foreign trade. The size of the quota determined the country's voting and borrowing rights. In 1944, the total volume of the fund was set at $8.8 billion; The US quota then was 31%. Every 5 years, quotas were revised taking into account changes in the economies of the participating countries. At the beginning of 1994, the total volume of funds provided to the fund increased to $205.4 billion due to an increase in quotas and the number of IMF participants. By 1994, the US quota had dropped to 18.3%, Germany and Japan it was 5.7% each, France and Great Britain - 5.1%. In 1999, the volume of IMF funds increased to $287.9 billion; The US quota was 17.67%, Japan - 6.33; Germany -6.19; Great Britain and France - 5.1 each; developing countries - 37.73, including Africa - 5.35; Asia - 9.63 (PRC - 2.23), Latin America - 7.55; Russia - 2.83%. When joining the IMF, the country had to contribute 25% of the quota in gold, the remaining 75% in its national currency. The golden share of the quota determined the country's reserve position. When borrowing from the Fund, a country received convertible currency in exchange for depositing an equivalent (and additional) amount of its currency in the Fund, up to 200% of the country's domestic currency quota. Initially, an IMF member country could receive a loan in the amount of no more than 25% of its quota per year, over 5 years - 125% of its quota. The first share in the amount of 25% of the quota was issued against gold (gold tranche ) without any conditions or restrictions. To obtain subsequent loan tranches, the IMF imposes higher interest rates, imposes increasingly stringent lending conditions, and strengthens its monitoring of the recipient country's efforts to correct its balance of payments. The repayment of the loans was designed for 3-5 years through the purchase from the Fund of that part of its own currency for which the loan was taken. In other words, the Fund must retain the original 75% of the national currency of the borrowing country. If the volume of national currency in the Fund was below 75% of the country's quota, then the country could receive the difference, which was called the super gold tranche, free of charge. The size of a country's quota minus its domestic currency contributed to the Fund determines the country's net position in the Fund. The evolution of the mechanism of the Bretton Woods monetary system. The mechanism of the Bretton Woods monetary system, developed and consolidated by the signing of the agreement in 1944, operated from 1947 to 1971. In 1950-1971. Many IMF member countries changed the gold coin parities of their currencies through devaluations or revaluations. The UK devalued the pound in 1964, 1967, 1969, 1972, 1974; the French franc was devalued in 1957 and 1967; Italian lira - in 1964, 1967, 1972, 1974 The West German mark was revalued in 1961, 1967 and 1969. Developing countries often devalued their currencies. Developed countries were reluctant to change the gold coin parities of their currencies, although this was provided for by the agreement. Countries with negative current account balances resisted the necessary devaluation because devaluation was considered a sign of the country's weakness. Countries with a positive current account balance did not want to revaluate, because this measure reduced merchandise exports, reduced the trade surplus and the accumulation of foreign exchange reserves. This reduced the effectiveness of the Bretton Woods system in its important function of resolving balance of payments imbalances. Current account disequilibrium, i.e. chronic assets in some countries and chronic liabilities in others, stimulated the movement of capital from countries with surplus balances to countries with negative balances according to current accounts. Short-term capital, the so-called “hot money,” moved especially quickly between countries after the introduction of convertibility of major currencies. Since 1958, in fact, and since 1961, European currencies have become legally convertible; the Japanese yen has become convertible against the dollar and other currencies in 1964 The increase in international capital flows was facilitated by the Eurocurrency market, which emerged in the 1950s, the development of European integration, and the expansion of international trade as a result of the reduction of customs duties by GATT member countries. Over time, the Bretton Woods system underwent several significant changes. These the changes, on the one hand, were caused by changes in the world economy, on the other, reflected the crisis of the system itself and were attempts to adapt it to new conditions in which it could no longer operate effectively.In 1962, the IMF approved a general regulation on borrowing. With this provision, the leading member powers of the G10, as well as Switzerland, created a fund and pledged to provide, if necessary, over $6 billion. those states that urgently need help to overcome the current account deficit. Subsequently, this fund increased, the general provisions on borrowing were updated and expanded. The central banks of the IMF member countries have agreed on the terms of the swap agreements, i.e. to provide the currency of any other country for intervention in foreign exchange markets in order to counter the flow of hot money. A country's central bank, having accumulated a significant amount of highly liquid funds, could sell foreign currency to increase the rate of interest (discount) or reduce the amount of time money in the foreign exchange market and disadvantage destabilizing flows of hot money. In 1971, total IMF funds reached $28.5 billion, of which 23.5% was the US quota. By the end of 1971, the IMF had provided loans totaling $22 billion, of which $4 billion was outstanding. The IMF also increased loan sizes to 50% of quota instead of the original 25% of quota. The most significant change in the mechanism of the Bretton Woods system in the period 1947-1971. there was an introduction Special Drawing Rights (SDR or SDR - Special Drawing Rights) to support international gold reserves, currency exchange rates, and reserve positions in the IMF. SDRs are a means of payment within the IMF. They are not backed by gold and cannot be freely exchanged for other currencies. SDRs are an international reserve. They can only be used in settlements between central banks to eliminate balance of payments deficits and surpluses, and not in commercial transactions. For the volume of SDRs exceeding those stipulated in the agreements, surcharges were initially established in the amount of 1.5%, and later - 5%. An agreement to issue SDRs in the amount of $9.5 billion was reached in 1967. This amount was distributed among countries in accordance with their quotas in three installments - in January 1970, 1971 and 1972. In 1979-1981 The second issue of SDRs took place in the amount of 12.5 billion dollars. Initially, the cost of SDRs was set at 1 dollar. Since 1974, the SDR has been pegged to a basket of currencies (in July 1999, 1 SDR = $1.3642). In 1961, an association (gold pool) of 8 states was created under the leadership of the United States in order to maintain the price of gold. Member countries of the gold pool carried out campaigns to sell official gold on the London market to prevent its price from rising above the officially established $35 per troy ounce. The gold pool existed until 1968. In 1968, a two-tier gold market was formed. In official settlements between banks, the official price was in effect; the commercial price of gold was regulated by the market. In 1968, the market price was 42.6 dollars per 1 troy ounce, in 2002 - 200).
Table 14.3. International reserves (billions of dollars) |
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Foreign currencies | |||||
Gold (office price)* | |||||
Total foreign exchange reserves, including SDRs and IMF positions | |||||
Note. * Official price of 1 troy ounce of gold = 35 SDR; 1 SDR = $1.3642 (July 1999); market price of 1 oz = $255.6 |
The international monetary system was greatly influenced by the US balance of payments and gold reserves. In the early post-war years, the United States had a huge balance of payments surplus and provided significant assistance to Western European countries through the Marshall Plan and on a bilateral basis. After the recovery of the Western European economy, the US balance of payments became negative by 1950; The deficit was covered mainly by dollars and partly by gold. The amount of dollars held by non-residents increased, the amount of gold held by the United States decreased; The ratio of foreign dollars to American gold reserves was declining. In 1949, the United States had $25 billion in gold; by 1970, gold reserves had dropped to $11 billion and covered only 20-25% of dollars held outside the country. By 1970, foreigners had $440 billion compared to $13 billion in 1949. The share of gold in international foreign exchange reserves decreased by the end of the 60s. to almost 40%; in 1950 it was about 70% (see Table 14.1).
The US was willing to exchange dollars for gold at a fixed price, making the dollar as good as gold;
dollars could be used in international settlements with any country, i.e. the dollar was a genuine international currency;
dollar deposits earned interest, while gold reserves did not.
Countries with active balances of payments (some Western European countries and Japan) readily accepted dollars because:
Until the early 1960s. The Bretton Woods system functioned normally, despite the fact that the United States had a passive balance of payments due to the export of capital and assistance to other countries. By the early 1950s. Western European countries restored their economies, and from the end of the decade Western European integration began to gain strength. Foreigners hoarded dollars; The dollar increasingly squeezed out the pound sterling and gold in international reserves. Originated in the 50s. The Eurodollar market allowed dollars to be stored outside the United States. In the early 60s. The question of devaluing the dollar arose, but the US administration categorically rejected this possibility. Instead, the US used other policy instruments to reduce the balance of payments deficit, which produced little results. To prevent the flight of short-term capital, the interest rate on these capitals was maintained at a very high level. At the same time, long-term interest rates were kept at relatively low levels to stimulate economic growth. The US also intervened forward in foreign exchange markets, selling strong currencies (such as German marks) in order to increase the discount rate without changing the exchange rate. This was done in order to make the outflow of liquid capital unprofitable. The US also intervened on its own in the cash market, supporting the dollar, together with other countries within the gold pool. The necessary funds for government interventions in the spot and forward markets were typically obtained through swap agreements between central banks and standby agreements with the IMF. The United States also took measures to stimulate the export of goods, in particular by providing funds for other countries to purchase American goods. In order to prevent foreign countries from exchanging excess dollars for gold, the United States issued so-called “Ruza bonds.” These bonds were medium-term Treasury bonds denominated in dollars, but with guarantees of exchange at the prevailing exchange rate. Despite the efforts made to reduce the balance of payments deficit and reduce the leakage of dollars, in the early 60s. foreign dollar reserves exceeded the US gold reserve. In January 1965, the French authorities, led by General De Gaulle, announced a change in policy regarding the structure of reserves. France decided to limit dollar holdings to the needs of current payments, and convert the remaining dollars into gold. The US Treasury converted the $300 million claimed by France into gold at $35 per ounce. The US administration tried to avoid devaluation of the dollar by inviting other countries to revalue their currencies, which would automatically reduce the dollar exchange rate. By 1968-1969 the US trade surplus fell on average to $0.6 billion; in 1960-1967 it was equal to 4.95 billion dollars per year. The United States was heading towards a deficit in foreign trade and current accounts, which was an indicator of a decline, first of all, in the price competitiveness of American goods, which was associated with the overvaluation of the dollar relative to other currencies. A sign of the overvaluation of the dollar against a number of currencies was the stable trade balance surplus of a number of countries, and primarily Germany and Japan. In 1969, the West German mark was revalued, in May 1971 - the Swiss franc and the Austrian schilling, which also indicated the inevitability of dollar devaluation. The crisis of the Bretton Woods monetary system. 1971 is a significant year in the evolution of the international monetary system, when all its basic principles were violated. The immediate cause of the collapse of the international monetary system can be considered the expectations that arose in late 1970 - early 1971 of a devaluation of the dollar due to the US trade deficit. This led to a massive outflow of liquid capital from the United States. Western European countries bought huge amounts of dollars and were eventually forced to introduce measures to limit the flow of dollars. The flight from the dollar increasingly focused on the Japanese yen. In the spring of 1971, Germany, Holland, and Belgium practically abandoned the fixed exchange rate and introduced a floating exchange rate for their currencies. The Japanese bank maintained the exchange rate of its currency against the dollar until the end of August, when the bank was forced to allow the yen to float. On August 15, 1971, the US administration stopped exchanging dollars for gold. Due to the irreversibility of the dollar into gold, the currency system switched from the gold-dollar standard to the dollar standard. In December 1971, representatives of the "Group of 10" concluded the Smithsonian Agreement. Under this agreement, major decisions were made, including the devaluation of the dollar, the revision of exchange rates for other currencies, and the return to fixed exchange rates with large fluctuations. The dollar price of gold was increased from $35 per 1 troy ounce to $38, which meant a devaluation of the dollar by 7.89%. The exchange rates of other currencies against the non-convertible dollar were revised, which was a fundamental change in the monetary system itself. The yen was revalued by 7.7%, the German mark by 4.6; the Dutch guilder and the Belgian franc - by 2.8%. England, Canada and France maintained the existing parities of their currencies, Switzerland maintained the parity that was established in May as a result of a revaluation of 7.1%. The currencies of Italy and Sweden were devalued by 1%. In addition to the revision of exchange rates, a decision was made to return to a fixed exchange rate. However, the limits on exchange rate fluctuations were extended from plus or minus 1% to plus or minus 2.25% of the agreed parity. The size of the 1972 dollar devaluation of 7.9% was insufficient, as evidenced by the US trade and balance of payments deficits. The expectation of the next dollar devaluation led to the resumption of play against the dollar. In March 1972, the member countries of the European Economic Community agreed to limit the fluctuations of their currencies against each other at half the rate against the dollar. This is called "snakes in tunnels." In April 1972, England introduced a floating exchange rate, violating the Smithsonian agreements of December 1971; other countries followed. In 1973, the Paris Agreement of 14 countries legalized floating exchange rates. In February 1973, the United States was forced to devalue the dollar again by 10% by increasing the official price of 1 ounce of gold to $42.22.