(Roughly) Daily

Posts Tagged ‘Bretton Woods

“Exorbitant privilege”*…

Economic history books will commemorate the era we currently live in as the second wave of financial globalization, following the first wave during the Classical Gold Standard period. Our era is characterized by an unprecedented expansion of global financial flows. Partly, these flows form the counterpart to global value chains and the globalization of trade in goods and services. In the last few decades, however, they have been increasingly decoupled from the real sector. The financial infrastructure that enables this expansion is the international monetary system…

In its current shape, [the international monetary system] has a hierarchical structure with the US-Dollar (USD) at the top and various other monetary areas forming a multilayered periphery to it. A key feature of the system is the creation of USD offshore – a feature that in the 1950s and 60s developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007–9 Financial Crisis, this ‘Offshore US-Dollar System’ has been backstopped by the Federal Reserve’s network of swap lines which are extended to other key central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four trajectories that would lead to different setups of the international monetary system by 2040, taking into account how its hierarchical structure and the role of offshore credit money creation may evolve. In addition to a continuation of USD hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation and the disintegration into an international monetary anarchy…

Americans tend to take the global primacy of the U.S. Dollar for granted (indeed, often complaining about the current account imbalances to which huge quantities of off-shore dollars lead). But there’s no mistaking that this system has been been hugely advantageous to the U.S. Yet, as Steffen Murau (@steffenmurau) explains, it may not last: “The evolution of the Offshore US-Dollar System: past, present and four possible futures.”

See also Mernau’s “International Monetary System” (from whence, the image above), and Ben Bernanke’s “The dollar’s international role: An ‘exorbitant privilege’?

* Valéry Giscard d’Estaing (then the French Minister of Finance; later French President), referring to the benefit that accrues to the U.S. as a result of the U.S. Dollar being the world’s reserve currency

###

As we count our blessings, we might recall that it was on this date in 1890 that journalist Nellie Bly completed her 72-day trip around the world.

In 1888, Bly suggested to her editor at the New York World that she take a trip around the world, attempting to turn the fictional Around the World in Eighty Days into fact for the first time.  A year later, at 9:40 a.m. on November 14, 1889, with two days’ notice, she boarded the steamer Augusta Victoria, and began her 24,899-mile journey.

She brought with her the dress she was wearing, a sturdy overcoat, several changes of underwear, and a small travel bag carrying her toiletry essentials. She carried most of her money (£200 in English bank notes and gold in total as well as some American currency) in a bag tied around her neck.

Bly traveled through England, France (where she met Jules Verne in Amiens), Brindisi, the Suez Canal, Colombo (Ceylon), the Straits Settlements of Penang and Singapore, Hong Kong, and Japan.  Just over seventy-two days after her departure from Hoboken, having used steamships and existing railway lines, Bly was back in New York; she beat Phileas Fogg’s time by almost 8 days.

Nellie Bly, in a publicity photo for her around-the-world voyage. Caption on the original photo reads: “Nellie Bly, The New York World‘s correspondent who placed a girdle round the earth in 72 days, 6 hours, and 11 minutes.”

 source

America’s most popular export…

 

It’s all about the Benjamins…  The story of the $100 bill is the story of U.S. money itself, and that story is opening a new chapter:

The hundred is the ultimate icon of American monetary strength. “It’s the closest thing to a global currency,” Chris Jones writes, “with about 60 percent of them somewhere other than here, making the Benjamin the most legal and threatened of tenders.” It’s getting a makeover…

Read a feature-by-feature rundown of the upgrade at “The New Hundy: A Study Guide.”

###

As we button our wallet pockets, we might recall that it was on this date in 1971 that then-President Richard Nixon declared that the official U.S. price of gold would be raised from $35 to $38 per ounce, devaluing the dollar, and effectively ending the Bretton Woods system of international financial exchange.  Earlier, in August of that year, Nixon had suspended the convertibility of the dollar into gold; still, the dollar was pegged at the $35 value stipulated by Bretton Woods.  In changing that value, Nixon ushered in the era of freely-floating currencies that remains to this day.

What has become known as “the Nixon shock” was a response to an overvalued dollar (a result of national debt incurred in the Vietnam War and the Great Society programs), and a subsequent move by nations (first West Germany, then Switzerland and France) to redeem their dollars for gold.  U.S. gold reserves fell by half from their level a decade earlier, to $10 Billion, and the U.S. feared a “run” on that remainder.  The suspension of convertibility addressed that danger, and (along with the price freeze, minimum wage guarantee, and import tariffs that accompanied it) helped both to stabilize the U.S. economy (temporarily- the period of “stagflation” was relatively soon to follow) and to bring the other developed economies to the negotiating table.  The results of that parlay, The Smithsonian Agreement, raised the “value” of the gold to $38 per ounce, eliminated convertibility as feature of the international currency regime, appreciated other currencies against the dollar, and focused efforts to balance the world financial system on special drawing rights alone.

 source

 

 

 

Written by LW

December 18, 2013 at 1:01 am

<span>%d</span> bloggers like this: