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Bretton Woods: banks without banks

During most of 1940s, social planning of old and new post-war Western order was centered in US government organizations (in particular Treasury and State departments) . in institutions based on wartime Anglo-American partnership, main goal of which was sustainable economic stability, means to achieve which could be found in multilaterally coordinated national control.

In first half of 1940s, desire for financial stability quickly turned into an obsession with state control through multilateral organizations. State control was considered key to establishing future order. A modern policy of state control and intervention should include at least three main areas: first, trade and balance of payments, then employment issues, and finally, areas of economic growth.

Its goal is that trade markets should be contained or regulated to curb disparities, and making full employment a decision-making goal is seen as a historic goal as it is seen as strengthening social cohesion avoiding violence Necessary a condition of conflict, sustainable growth must be achieved so that government can cushion ups and downs of business cycle.

When it comes to general problem of multilateral government control, White and Keynes are in same camp as innovators.

Bretton Woods: banks without banks

the gold standard and its laissez-faire system was corrupt and "crazy" old world they wanted to get rid of, and people closely associated with this effort A strong belief that that money and capital flows should not run world (as it did during gold standard, with a mechanism that works largely automatically to control movement of gold reserves across borders).

According to Keynes and other innovators, including Harry Dexter White, who planned Bretton Woods, and vice versa, money should rule world and use it as a tool for designing more stable and simpler societies.

Capital flows of any future organization must be controlled, which means that freedom from exchange controls, a necessary condition for any proper international system based on free trade, will be limited to current transactions, short-term capital and speculative transactions. Hot money” should be opposed to state control.

"Capital controls contribute to economic stability" because exchange rate changes destabilize domestic economy, but if balance of payments can be strengthened by capital controls, even temporarily, it may become redundant.

So, international banking will not be part of multilateral world of future West.

The paradox, however, is that new world order that innovators have been hammering together is based on borrowing, and they point way to future stability, which basically means embarking on path of international monetary cooperation, including inevitable

strong> "Banking", which should be an integral part of it.

In other words:The future is banks without banks. The key to first post-war building of multilateralism in West lay much more than free trade.

In order to follow principles of free trade, although it may have been quite elusive at time, it was not completely abandoned. If only because it was firmly rooted in real world in early 1940s, in fact, several institutions existed and functioned, such as Atlantic Charter and Lend-Lease.

However, free trade will soon become a thing of past, perhaps not in words, but certainly in deeds.

Understandably, leading innovators such as White and Keynes adopted experimental policies that gradually but effectively relegated free trade and trade itself to secondary interests of post-war Western multilateral organizations.

To a large extent, this is result of necessary pragmatism, as trade presents planners with an endemic and truly unsolvableproblem, if free trade is considered a precondition for stability (as in "Atlantic Charter" and Article VII of notorious Lend-Lease Agreement), then borrowing and balance of payments borrowing must be subordinated to good commerce (buying and selling) as a means to achieve this primary goal.

With devastating effects of European wars and uncontrollable differences in economic development in West that make good business an almost impossible priority, it's easy to see: Europe needs capital!

Money, lending and investment are most pressing needs to manage chaos of balance of payments and contain risks associated with chaos in Europe, not free trade.

Resolving balance of payments mess becomes a priority, and currency management becomes a tool (plus, US will inject money into Western Europe through Marshall Plan starting in 1947).

Bretton Woods: banks without banks

In early 1940s, Keynes was busy planning an international organization to deal with complex balance of payments problems, and his central thought was idea that levers of monetary policy could be used to control balance sheet. payments.

This is a Copernican warp in economic thinking that triggered "shift from a contentious trade issue to a currency issue", but for him, most importantly, it opened up a new area of ​​planning, drafting and multilateral organization.

In this new interface between trade and money, financiers found that, as John Eikenberry pointed out, Keynesian ideas created an "emerging" middle ground.

Of course, theory belongs to theory, reality is another matter. The planning underlying Bretton Woods agreements simply allowed countries concerned to gain time in combating central paradox of post-war planning.

Keynes pointed way out of them, he found key to "golden fetters" of non-intervention and led him into a supposedly fairer world of uncorrupted technocracy.

In a world of Keynesian fantasy, a world free of gold fetishes, slave politics and mediocre politicians, trick is to expand horizons of international economy, where real world problems are projected in fog of future (monetary) settlements. more reassuring (twilight) light.

Bretton Woods: banks without banks

The realm of money offers previously unknown opportunities, as well as challenge of redefining inherently unsustainable socio-economic conditions both at home and abroad.

Keynes's multilateral misrepresentations to secure domestic social policy have opened a way out of predicament of existing trade imbalances, and if they continue, this may inevitably lead Western world to again face aforementioned Rubicon crossing principle. sexual solution.

In eyes of many, as it should have been in transatlantic circles of post-war Western engineers, currency field became main building site of post-war planning, a platform where builders turned on Keynesianism, which made it possible to redefine socio-economic realities.

It is widely believed in these circles that politicians should have access to budgets in order to smooth out business cycle that will remain part of imperfect market caused by any capitalist order, and what Keynes seems to suggest is case when Budget become a tool in hands of policy planners and engineers, leading to a dramatic transition from policy to policy.

Because fixed exchange rates were seen as a necessary condition for stabilization of international economy, especially trade, a struggle began in favor of fixed exchange rates (which should be ignored by government agencies), which led to three results:First. it is far-reaching government control, followed by multilateral experiments characteristic of international funds, and finally perpetual capital controls.

The search for stability through (multilaterally coordinated) control leads to a regime with an inherent tendency towards multilateral "weak control" due to two features of Bretton Woods system.

Firstly, clearly guaranteed internal autonomy and absence of any form of supranational oversight reduces system to a gentlemen's agreement, but this can easily be undermined by short-term political calculations of one or more member states or a more patriotic future. .

Second, future convertibility was seen as a fundamental requirement for operation of system, and post-war inconvertibility was considered acceptable only during transitional period to overcome severe balance of payments imbalances in early post-war years of Stablize.

However, future convertibility inevitably implies pressure on temporary capital control regime (because it requires capital flows to be released or invested).

To sum it up: if system's inherent tendency to prioritize national short-term growth or social policy objectives over virtues of multilateral coordination and convertingruability can be achieved, end result is likely to be very different from what Bretton Woods envisioned, systems are very different.

Such a situation would lead to creation of blocs within a financially integrated West that would drift largely by uncontrolled capital flows and would obviously also include a resurgence of international banking (which would mean that financial markets would inevitably judge domestic room more and more to maneuver).

Bretton Woods: banks without banks

Furthermore, if one of main trends described above is released, it can be expected that this will strengthen another, more direct one: bloc formation will stimulate regional convertibility and regional market integration. This, in turn, will increase pressure for free movement of capital, which in world of welfare states will provoke regional (protectionist) reactions.

Ultimately, both of these developments will undermine half-hearted structure of Bretton Woods system and force a choice between freely floating exchange rates or monetary union, or more likely regional choice that, in fact, will have under Tone Woods system , there were only two countermeasures to this sinister choice: US hegemony and government control of capital, maintenance or abolition of which would mean formation of a post-war order in Western Europe in a completely different way.

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