"What About a New Bretton Woods??? – with three question marks. The two words "Bretton Woods" still seem to invoke a certain nostalgia – memories of a more orderly, rule-based world of financial stability, and close cooperation among nations. Following the two disasters of the Great Depression and World War II that at least was the hope for the new International Monetary Fund, and the related World Bank, the GATT and the OECD.No one here was actually present at Bretton Woods, but that was the world that I entered as a junior official in the US Treasury more than 50 years ago. Intellectually and operationally, the Bretton Woods ideals absolutely dominated Treasury thinking and policies. The recovery of trade, the opening of financial markets, and the lifting of controls on current accounts led in the 1950's and 60's to sustained growth and stability.
- When compared to the Bretton Woods system, in which countries defined their currencies by a fixed rate of exchange to the Dollar, and the US in turn defined the Dollar as 1/35 th of an ounce of gold:
- Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%
- World inflation of 4.8% a year is 1.5 percentage point higher;
- Downturns for the median countries have more than tripled to 13% of the total period;
- The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods.
"Walter Bagehot long ago set out succinctly a lesson from experience: 'Money will not manage itself.' He then spoke from the platform of the Economist to the Bank of England. Today it is our mutual interdependence that requires a degree of cooperation and coordination that too often has been lacking on an international scale."