International monetary system
For example, scholars have tentatively suggested that the Roman king Servius Tullius created a primitive monetary system in the early history of Rome.
They were generally supported by the city state authorities, who endeavoured to ensure they retained their values regardless of fluctuations in the availability of whatever base or precious metals they were made from.
In Venice and the other Italian city states of the early Middle Ages, money changers would often have to struggle to perform calculations involving six or more currencies.
In contrast to the Bretton Woods system, the pre–World War I financial order was not created at a single high level conference; rather it evolved organically in a series of discrete steps.
Economist Nicholas Davenport[11] had even argued that the wish to return Britain to the gold standard "sprang from a sadistic desire by the Bankers to inflict pain on the British working class".
The United States, however, was reluctant to assume Great Britain's leadership role, partly due to isolationist influences and a focus on domestic concerns.
The objective was to create an order that combined the benefits of an integrated and relatively liberal international system with the freedom for governments to pursue domestic policies aimed at promoting full employment and social wellbeing.
The new exchange rate system allowed countries facing economic hardship to devalue their currencies by up to 10% against the dollar (more if approved by the IMF) – thus they would not be forced to undergo deflation to stay in the gold standard.
Keynes had argued against the dollar having such a central role in the monetary system, and suggested an international currency called bancor be used instead, but he was overruled by the Americans.
Generally the industrial nations experienced much slower growth and higher unemployment than in the previous era, and according to economist Gordon Fletcher in retrospect the 1950s and 60s when the Bretton Woods system was operating came to be seen as a golden age.
On the positive side, at least until 2008 investors have frequently achieved very high rates of return, with salaries and bonuses in the financial sector reaching record levels.
While ever since the seventies there have been numerous calls from the global justice movement for a revamped international system to tackle the problem of unfettered capital flows, it was not until late 2008 that this idea began to receive substantial support from leading politicians.
On October 13, 2008, British Prime Minister Gordon Brown said world leaders must meet to agree to a new economic system: We must have a new Bretton Woods, building a new international financial architecture for the years ahead.
[24]However, Brown's approach was quite different from the original Bretton Woods system, emphasising the continuation of globalization and free trade as opposed to a return to fixed exchange rates.
International agreement was achieved for the common adoption of Keynesian fiscal stimulus,[28] an area where the US and China were to emerge as the world's leading actors.
[34] March 2009 saw Gordon Brown continuing to advocate for reform and the granting of extended powers to international financial institutions like the IMF at the April G20 summit in London,[35] and was said to have president Obama's support .
[36] Also during March 2009, in a speech entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People's Bank of China came out in favour of Keynes's idea of a centrally managed global reserve currency.
Dr Zhou argued that it was unfortunate that part of the reason for the Bretton Woods system breaking down was the failure to adopt Keynes's bancor.
Dr Zhou proposed a gradual move towards increased use of IMF special drawing rights (SDRs) as a centrally managed global reserve currency.
[39] In a November 2009 article published in Foreign Affairs magazine, economist C. Fred Bergsten argued that Dr Zhou's suggestion or a similar change to the international monetary system would be in the United States' best interests as well as the rest of the world's.
[16] On Jan 27, in his opening address to the 2010 World Economic Forum in Davos, President Sarkozy repeated his call for a new Bretton Woods, and was met by wild applause by a sizeable proportion of the audience.
[43] In August 2012 in an International Herald Tribune op-ed, Harvard University professor and director of the Committee on Capital Markets Regulation Hal S. Scott called for a global response to the Euro-zone crisis.
He wrote that two failures to address European problems around German power had led to world wars in the 20th century and that the current crisis was also beyond the capacity of Europe, with Germany again at the center, to solve on their own.
