Noah Z.
The obvious answer is that we were the only surviving economy during post-war reconstruction, but the finer points of what we call exorbitant privilege come from a small town in New Hampshire. The Mount Washington Hotel is in an area called Bretton Woods, which is the name we economists gave to the post-war economic system when delegations from from a litany of nations in 1944 wrote a comprehensive resolution on international trade. This is the whole thing at a light 71 pages, and much like the Lord of the Flies, you don’t need to read the whole thing to know what it’s about.
In short, Bretton Woods made the US Dollar the primary unit of trade, and helped keep the foreign exchange market in some sort of equilibrium; in order to buy shares of the IBRD, the international bank that loans out money to the countries which have burgeoning economies, one had to use USD, and the IMF required gold, but if a reserve currency appreciated or depreciated, that reserve currency would flow in or out of the IBRD or IMF depending. Theoretically this limits the ability of nations to engage in economic warfare by manipulating exchange rates to their own advantage. As can be expected, the US controlled a third of all shares in the IBRD, and whoever has the largest amount of shares has the greatest voting power in the IBRD, which is what we would now refer to as the World Bank in conjunction with the International Development Association which didn’t come about until 1960. There is also a board of 12 directors, 5 of which are nominated by the top 5 shareholders, which includes America. Not only was and is the USD the primary unit of trade, but the new world order following 1945 allowed America to be the largest force in the various international organizations.
Noticeably absent from the list of nations as members of the IMF was the USSR, which signed the final Act, but didn’t ratify the accord. If any 2 economies are intact after the war, it is America’s and the USSR’s, but the USSR’s lack of involvement in the post-war reconstruction was a momentous failure in the department of foreign relations; another key goal of the IMF was to provide a method for the crippled establishments of Europe to kickstart their economies, which is what we see in the Marshall Plan not 3 years after the war. The American sphere of influence extended across Western Europe during post-war reconstruction.
If not another global power, there was one proposal made in an effort to limit the US projection of power, from none other than John Maynard Keynes, the british delegate at the committee. Instead of placing all the currencies onto USD, he proposed the bancor, a supranational currency to be used solely as a unit of account; individuals would not trade in bancor; nations would trade in bancor by exchanging gold for it, as opposed to a system of pegged exchange rates and the USD as a reserve currency. Certainly this alleviates a portion of the foreign dependencies and trade imbalances, but due to the strong US delegation of Harry Dexter White and the power of American hegemony, his ideas could not gain traction.
Any manner in which the tale is spun, the United States gained exorbitant privilege in the global economy, and that still influences today’s market; America has the ability to pull the strings of the IMF with their committee votes and decide where the loans go; the game of global trade was written with the rules rigged in America’s favor, so the burden of the moral imperative when it comes to foreign dependencies, unequal trade, and control of the supply chains falls to the American hegemony.
Works Cited
“Bancor.” Wikipedia, Wikimedia Foundation, 18 Dec. 2018, en.wikipedia.org/wiki/Bancor.“Bretton Woods Conference.” Wikipedia, Wikimedia Foundation, 28 Feb. 2019, en.wikipedia.org/wiki/Bretton_Woods_Conference.
Chen, James. “Bretton Woods Agreement.” Investopedia, Investopedia, 13 Apr. 2019, www.investopedia.com/terms/b/brettonwoodsagreement.asp.
“John Maynard Keynes.” Wikipedia, Wikimedia Foundation, 27 May 2019, en.wikipedia.org/wiki/John_Maynard_Keynes.
Huh, I didn't know any of these events happened when it came down to deciding a currency for the U.S.. It makes sense that deciding on a different currency besides gold would be a difficult task, and one the country would want to rig in it's favor, although, I don't think most countries would willingly create an economy not rigged in their favor. With that kind of economy, it's easy for the government to become corrupted, and everybody else would suffer for it. I basically just described what communism is right now.
ReplyDelete