Benign Neglect of Dollar: The Bretton Woods and Its Demise

Abstract

In order to understand the present financial crisis in a longer perspective, it is essential to look at and realize the systemic changes both in the USA and the global economy over the last century. The postwar economic prosperity presented a sharp contrast to the economic devastation of the earlier period of two world wars. Against this backdrop, the new global economic and monetary system was built at the Bretton Woods summit in New Hampshire in 1944, where financial experts, economists, and policy makers from all nations had gathered to create a framework for establishing a new global economic order for sustained and broad-based economic growth based on mutually advantageous trade and investments and stable international monetary system. The new system based on cooperation and accommodation, rather than hostility, conflict, retaliatory politics, and economic policies emanating primarily from political and economic rivalries, paved the way for uninterrupted economic progress for more than two and a half decades until 1971. This era of economic growth and tranquility of the 1950s and 1960s could not be sustained further by the Bretton Woods Framework. By the beginning of the 1970s, the postwar global economic architecture was showing the signs of weakness under the stress of demands for sustainable global growth and its more equitable sharing among the nations.