In July 1944, delegates from 44 countries gathered in the UN sponsored Conference in Bretton Woods, New Hampshire, to decide on a post-Second World War monetary and financial order. In his closing speech, then US Treasury Secretary Henry Morgenthau concluded that the Conference succeeded in addressing the twin “economic evils the competitive currency devaluation and destructive impediments to trade” that led to the War. To prevent competitive devaluation, the Bretton Woods Conference established the fixed but adjustable exchange rate system, based on the US dollar linked to gold and capital controls, with funding from a newly created World Bank and the International Monetary Fund (IMF).

The global free trade mechanism was negotiated first through the General Agreement on Trade and Tariffs (GATT), which later became the World Trade Organization (WTO). The Bretton Woods negotiations were led by the US chief delegate, Harry Dexter White (reputed later to be a Soviet spy) and the eminent British economist, John Maynard Keynes. Keynes argued unsuccessfully for the creation of a new international currency Bancor, whereas the US preferred its dollar. In 1944, the US was 50 per cent of world GDP, with the largest gold reserves, and major creditor to all economies suffering from war. No surprise that the Bretton Woods order was largely US-led and designed. This Bretton Woods structure lasted till 1971, when rising US fiscal and trade deficits forced the dollar to delink from the gold at the fixed price of $35 to one gold ounce.

After flexible exchange rates became the norm, the US continued to exploit its dollar exorbitant privilege – America is financed by........

© The Statesman