Gilded dollars

Text: DaDa

New Hampshire, USA, has a scenic tourist resort-Bretton Woods. The most famous hotel in Bretton Woods is the Monte Washington Hotel. Bretton Woods became famous for a historic conference. In the summer of 1944, shortly after the Normandy landings, when the world's attention was focused on the smoke-filled battlefields of Europe, the Washington Hotel in Bretton Woods was quietly buzzing.

A total of 730 delegates from 45 countries met to discuss how to build a global monetary and financial system. Many of the attendees were regulars in the mainstream financial media, including Rosepin Treasury Secretary Morgenthau, Deputy Secretary White, and Federal Reserve Chairman Eckles. The most influential of these was Maynard Keynes, the head of the British delegation. His reputation lasted for more than 60 years, and he was by far the most influential economist in government economic policy. White, the undersecretary of the treasury, was also a famous economist. When the american government's plan and keynes's plan were put on the agenda at the same time, an international conference became a war of words between the two economists.

Keynes proposed that a super-sovereign international currency should be created to assume this function. He named it Banko. White thought that this was unnecessary. The dollar could directly assume this function, while other countries 'currencies could only be pegged to the dollar. Banko or the dollar was the focus of debate. The objective of Keynes 'plan is to prevent the United States from using the US dollar to dominate the global economic leadership. At this time, the United States has two-thirds of the world's gold reserves and is the world's largest creditor country. Its comprehensive national strength is unparalleled in the world. However, Europe's economy is on the verge of collapse after war, and Britain, the former hegemon, has become the largest debtor country of the United States. Therefore, the background of White's plan is the strong military and economic strength of the United States. The result of the debate between the two economists was that economic strength determined everything, and White's plan won.

The Bretton Woods Agreement was issued in July 1944. The most important content is that the currencies of all countries are pegged to the US dollar, and the annual exchange rate fluctuation shall not exceed 10%. The US dollar is pegged to gold. Governments can exchange gold with the United States at any time at the official exchange rate of US $35 an ounce. This is the famous double peg. In this way, the dollar became the only credit currency in the international market. After World War II, the Bretton Woods system brought postwar financial stability and facilitated cross-border flows of goods and capital. Global trade grew steadily from 1948 to 1976, averaging 7.8% a year.

The biggest beneficiary of bretton woods was the united states, which controlled the issuance of dollars and, in bad times, simply printed more dollars in exchange for goods and services from other countries. Dollar hegemony has greatly strengthened the dominance of the United States in the global economy, and at the same time, it has also brought the shadow of the dollar crisis.

In the 1960s, the German and Japanese economies rose, the American economy loved to be weak, the balance of payments deteriorated sharply, in order to stimulate the economy, the printing press of the United States accelerated, the growth of the dollar currency led to the depreciation of the dollar, but the official exchange rate of the dollar to gold did not change, so governments of various countries converted the dollars held in foreign exchange reserves into gold one after another, resulting in a substantial decline in the gold reserves of the United States. The first dollar crisis broke out in October 1961, and there was a wave of selling dollars to buy gold in the international market. The dollar crisis caused gold prices to rise and the market exchange rate quickly soared above $40 an ounce. In the summer of 1971, the international market once again set off a frenzy for gold. The French government even took the lead in exchanging bundles of dollars for gold in the United States. At this time, if the official exchange rate of $35 an ounce continued, the gold reserves of the United States would be exhausted. On August 15, 1971, President Nixon of the United States announced the implementation of the new economic policy, the most important of which was the decoupling of the US dollar from gold-known as Nixon shock. Since then, countries have abandoned fixed exchange rates against the dollar and switched to floating exchange rates. In 1973, the Middle East oil crisis broke out, gold prices soared, the dollar and gold completely broke apart, and the double-linked international monetary system collapsed after 27 years.

Well, that's it for today's science popularization. See you next time.