Special issue: "50 years after the collapse of the Bretton Woods international financial monetary system"

Guest editors
Laura Vidal Correa y Wesley C. Marshall

Just over 50 years ago, on August 15, 1971, U.S. President Richard Nixon announced the suspension of the convertibility of the dollar for gold; a measure that was announced as temporary, but that would become permanent. From that decision to the present, the historical fact continues to be immersed in mystery and debate. Over the next half-century, some of the secrets behind Nixon's decision have been clarified, but the debate remains far from resolved.

There are two extreme positions in the economic debate. One argues that the breakup of Bretton Woods was a crucial historical moment, the salvo that marked the real beginning of the restoration of high finance. After breaking their "golden thread" —the gold standard— in the turbulent end of the long nineteenth century, in the 1920s-1930s, the large and traditional global banks managed to wrest control the largest and most important financial markets (foreign exchange and public debt) the control of nation states, imposed during the Great Depression. Such an approach implies a historical prominence of the most important private actors in capitalism and a clear intention to end the Bretton Woods system in order to strengthen their interests.

The position at the other extreme of the debate alleges a historical accident, attributed to the only American president to be forced to leave the presidential chair for his criminal activities.  Between the extremes of the determinism of a social group and of A historical accident lies most economic research on the fall of Bretton Woods, which to varying degrees attributes historical change to the determinism of the economic system.

At the time of the decision and in the following decade, many economists emphasized the deteriorating U.S. balances, arguing that twin deficits (trade and fiscal) made the system unsustainable. The requests from England and France for payments in gold were signs of the weakness of the system and of the position of the US, itself debilitated by the expenses of the war in Vietnam. The mixture between a deranged president and systemic deterioration became the conventional thinking regarding the end of the system.

Such thinking has had important critics; since the seventies, the post-Keynesians have figured as the most important in the US and Britain, while the school of French regulation offered answers to the economic conjuncture with greater emphasis on power relations and the state. In Latin America, the dependentist current fully incorporated international political conditions into its economic analysis and gained strength along with the coups d'état in South America that would begin with Chile just over two years after Nixon's decision.

With the passage of time, issues related to the incipient world disorder were opened.  After inflation in the countries of the center as a direct result of the devaluation of the dollar, in the eighties, the Washington Consensus began to be imposed, first for Latin America, then for the former Soviet bloc, later to subsume much of Asia to its policies of austerity and financial liberalization, to finally, in less than a decade, end up plunging the countries of the center into crisis as well.

Thus, while the significance of the historical event of 1971 continues to be debated, many now recognize the date as the end of the financial order of a system that promoted national production over international finance, and the beginning of global financial disorder and what would come to be called globalization. However, as it expands its boundaries, some of the assumptions about the Bretton Woods international financial system are increasingly called into question.

In particular, the idea that the country that maintains the hegemonic currency —global or regional— also maintains the twin deficits, has come to be accepted by many as part of the design and not a failure of the system. It is precisely the accounting manifestation of the power to spend without international limit, to avoid the external restriction that the US already felt squeezed BY, according to P. Volcker, within the Bretton Woods system. By getting rid of a consensual international monetary system, designed to minimize imbalances in the international economy, the US could manage "controlled disintegration" as Volcker (Volcker, 1978) also insisted. At the height of a chaotic order, the U.S. could now wage multiple long wars without any financial constraints.

Precisely, what makes today's conjuncture so interesting is that half a century later, we are faced with the same dilemma in the appreciation of reality. Just like in 1971, there are two narratives. On the one hand, it is argued that the current disorder is a symptom of an empire in decline: facing the collapse of the financial system of 2007-2008, cryptocurrencies such as Bitcoin have arisen, supposedly to circumvent the dysfunctional American financial system. The opposite argument is that the US is again not behaving like a retreating empire due to its poor decisions and an unfavorable systemic environment but is forcing another transition, this time to the digital economy, but just like half a century ago, led by the strongest sectors of the system. It is in this context that this special issue of www.olafinanciera.unam.mx is presented.

One of Dr. Eugenia Correa's virtues was her ability to weave, cultivate, and maintain academic networks. For readers of www.olafinanciera.unam.mx, this has meant a tradition of publishing authors at the forefront of critical thinking. This special issue is the result of one of her latest initiatives, and includes five of her esteemed colleagues, all united by mutual respect and the same path towards a better understanding of our world, without forgetting that the objective of these reflections is to influence the containment of the deterioration of the living conditions of the societies of the planet.

Tasked with looking back, the five authors —all with a view from the heights of social scientific knowledge— analyze, clarify, and nuance the half-century that has followed the collapse of Bretton Woods. Aa we are again in a moment of great systemic changes, the analysis of the past also invites us to look forward. Optimistically, the most remote history will continue to reveal its secrets, as will the social forces behind the current direction of the conjuncture of the global monetary order. But the only certainty is that the process will be fascinating to its observers, and we hope that this installment will serve as a lodestone to calibrate compasses and keep criticism informed during these moments of confusion, chaos and fear, in which it is increasingly urgent to open and maintain debate.

      Laura Vidal Correa y Wesley C. Marshall

Volcker, P. (1978) "The Political Economy of the Dollar". The Fred Hirsch Lecture. Coventry, England; in: The Federal Reserve Bank of New York Quarterly Review 3, no. 4 (Winter 1978–79): 1–12.

<< back