Inventing a New World Order: Toward Bretton Woods II

January 09, 2023

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“The majestic beauty of the surroundings was in striking contrast to the temporary bedlam which broke out on this plateau in the shadow of Mount Washington.”

 

- New York Times, July 1944

 

 

 

. . . . .

     

On July 1, 1944, delegates from the Allied nations gathered at Mount Washington Hotel in Bretton Woods, New Hampshire. World War II raged on. Much of Europe and Asia was destroyed. Fierce fighting continued in the Pacific and in Europe.

 

The purpose of the meeting – the “bedlam” described by the Times – was to rethink, reinvent and rebuild the entire global economic and financial system, at the war’s end. Delegates had only 21 days. They had to vacate their rooms by July 22, to make room for the wealthy moguls of Boston.  

 

What emerged from the 21-day gathering was a powerful ecosystem that led to the unprecedented generation of wealth and income. Beauty and beneficence emerged from bedlam. The Allied nations invented the IMF, the World Bank, and crucially, the GATT – General Agreement on Tariffs and Trade.

 

As a direct result, world GDP grew from $9.25 trillion in 1950 (measured in inflation-adjusted 2011 dollars) to $47 trillion in 1990, and, after the Berlin Wall fell on November 9, 1989, accelerating European unity, to $188 trillion in 2015. Such 20-fold global growth was unprecedented in world history.

 

What generated this boom in large part was the GATT, which opened markets to booming world trade. 

 

But there was a crucial flaw. J.M. Keynes, representing the UK, wanted to create a World Central Bank to manage a world currency. America’s delegate Harry Dexter White refused. There already is a world currency – the dollar, he said. 

 

And at the time, because the US GDP was fully 75% of a ruined world GDP, America’s money spoke loudest. The dollar would be the world currency henceforth. To this day, over 85% of world foreign exchange transactions are done in dollars.  

 

Herein lies the rub. The legal mandate of the US Federal Reserve system is to manage inflation and employment for the US economy. At present, the US Fed is hiking interest rates drastically to battle US inflation. This pulls money in from the rest of the world like a magnet, forcing other central banks to boost their interest rates, like it or not, or see their currencies collapse. Basically, at present, the US Fed is exporting an economic recession. There is growing and justified unhappiness in the world over this policy.

 

So, clearly, this is the time to re-imagine a new Bretton Woods agreement – Bretton Woods II. The world faces new challenges. It will take a high-level gathering of world leaders to resolve them.

 

What changes must be made in the global economic and financial system? Is it even reasonable to imagine a renewed global system, given the current Cold War-like fractures among China, Russia, and the U.S.?

 

What follows is an imaginary account of what a new Bretton Woods might accomplish. It may be science fiction – but SF has anticipated many futuristic developments that came about in reality.

 

. . . . .

 

It is July 1, 2024. Mt. Washington, the highest mountain in New England, is surprisingly still snow-topped, after a snowy winter, despite global warming. At its foot lies the historic Mt. Washington Hotel, lately refurbished, built of New England wood, its walls decorated with photographs of the historic 1944 gathering.  

 

Delegates from the G20 nations are gathering. Russia is absent. Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union are present. A special guest is Mia Mottley, Prime Minister of Barbados, a tiny nation of 300,000 – for reasons that will be explained later. Also present is Henry Kissinger, 101 years old, still vigorous and full of wisdom.

 

Bretton Woods II culminates an intensive process, in which creative thinkers from all disciplines and walks of life thought deeply about how to redesign society – the way we live, love, and work. To provide structure for this initiative, the principles of design were employed – the way beautiful products, services, buildings, etc., are designed. It served as a paradigm for redesigning society, to create one that is just, fair, efficient, stable, productive, creative, lively and charitable.  

 

Thinkers worldwide were asked to apply the principles of design to create a society that “fulfills the adjective.” If the adjective chosen by the thinker is “just” – the just society, then his or her mission was to use the design principles to redesign a more just society. If “fair” – the fair society, then, use design principles to redesign a fairer society. And so on.

 

The resulting briefing book is placed before the Bretton Woods II delegates, jampacked with effective, creative ideas for reinventing the world order.

 

 

. . . . .

 

US Treasury Secretary Janet Yellen opens the gathering on July 1. She offers the world a gift.  

 

 “Often,” she remarks, “it takes 78 years for nations to recognize and admit their mistakes. America erred at Bretton Woods I, in 1944. The dollar cannot be the US currency and the world currency at the same time. True, the dollar is stable, trustworthy, well-managed. As Fed Chair, I oversaw this, from 2014 to 2018. But the dollar is specifically, overtly managed for the benefit and well-being of Americans. What if the world wants and needs low interest rates, while the U.S. wants and needs high rates (as occurred in 2022)? The answer is clear. High trumps low.

 

“We are proposing today to create a World Central Bank. Keynes wanted to call the resulting global currency ‘bancor.’ It will serve not as daily currency but solely to finance trade and investment by governments. The global currency will be backed by tranches of leading world currencies: dollars, euros, renminbi, yen, and some gold. The World Central Bank will be led by a professional, with a global directorate. Its mandate will be: To manage the world supply of currency for the well-being of the nations of the world, specifically trading nations. The world money supply will be managed in a way that stabilizes the world economy, just as a domestic Central Bank manages its money for its own economy.

 

“We Americans admit – we should have done this, as Keynes advised, in 1944. Better late than never. And by the way – de facto, we already do have a world currency. It has a rather boring name: Standard Drawing Rights, SDRs. Let’s give it a proper name, an institution, a legal document, and bring it out into world financial markets!”

 

“I now yield the podium to my friend Mia Mottley,” Yellen says, waving to the next speaker, “Prime Minister of Barbados. Mia will explain how we can deal with the fallout from global warming that is impacting us all.”

 

Stalin’s scornful remark about the Pope (“how many divisions does he have?” said the French Foreign Minister in 1935), may apply to Mia Mottley. She has zero divisions. But as the leader of her tiny Caribbean island nation of 300,000, she brings a powerful intellect and a London School of Economics education.  

 

She outlines what is later known as the Bridgetown Initiative, to be implemented as part of Bretton Woods II. And it is brilliant. SDRs give holders the right to borrow from other IMF members at 2.7%. Bridgetown proposes a Global Climate Mitigation Trust that holds $500 billion of unused SDRs. These become collateral; the Trust borrows currencies in the SDR basket and lends them to low- and middle-income countries, in return for shares in the projects. In this manner, the borrowing does not appear in the already-stretched debt structures of these countries. The Trust has the potential of drawing $3-$4 trillion in new savings into the fund. According to the IMF, the “energy transition” enabled will generate enormous net gains in global GDP. 

 

All this, from the leader of a nation smaller than the rounding error of the smallest Chinese city.  

 

Yellen, Mottley, and others fired volleys of new, practical and creative ideas. A clear workable blueprint for a new world order emerges.

 

 

. . . . . .

 

Henry Kissinger ends the Bretton Woods II gathering with a short, amusing talk. It is Saturday, July 22, 2024, and the delegates have to vacate their rooms – because, as in 1944, the wealthy scions of Boston had reserved rooms for their summer vacations. Over breakfast of waffles and scrambled eggs, Kissinger outlines his theory of leadership.  

 

“I have personally known six leaders who changed the world,” Kissinger says. “Here they are, in order: Konrad Adenauer, who brought Germany back into the community of nations through ‘the strategy of humility’ (admit transgressions, work to try to make amends),  Charles de Gaulle (‘the strategy of will’), Richard Nixon (‘the strategy of equilibrium’), Egypt’s Anwar Sadat (‘the strategy of transcendence’), Singapore’s founding father Lee Kuan Yew (‘the strategy of excellence’), and Margaret Thatcher (‘the strategy of conviction’).”  

 

“Those six key qualities capture all that we seek in a leader,” Kissinger says. “Humility, equilibrium, will, excellence, conviction, transcendence. I hope and trust the leaders gathered here will embrace those qualities and implement them in the decisions taken here the past 10 days.”       

 

 

. . . . .

 

Bretton Woods II stood the test of time. It brought new stability to the world financial system, by regulating money and credit in a manner that regulated the well-being of all nations, not just the U.S. It brought crucial resources to the Global South, suffering from the climate crisis, from the Global North whose wealth was built on the carbon emissions that wrapped the Earth in a warm blanket of CO₂. Destabilizing flows of desperate migrants vanished, as opportunities flourished at home.  

 

BWII fostered new trade among Pacific nations and generated renewed export-driven growth after the pandemic recession. And as with Bretton Woods I, it renewed the time-proven adage: Nations that grow wealthy together are far less likely to fight one another; people who find opportunities remain at home rather than flee abroad; the nations that created global warming at last paid reasonable damages to the poorer nations that suffered from it; the enormous destabilizing force of wealth inequality diminished…

 

…And then, I woke up.

 

 

 

 

 

 

This article is from the December issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the September issue, please click here:

http://www.taiheinstitute.org/Content/2022/12-31/1349370622.html

 

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