2016 Volume 2016 Issue 183 Pages 183_73-183_86
This article reconsiders the restructuring of the international financial system in the 1970s and early 80s. The restructuring began after the failure to sustain the value of the US dollar in August 1971 (referred to as the Nixon Shock) and the subsequent collapse of the Breton Woods system due to the floating of major Western currencies in 1972–73. The monetary reform process then proceeded in a broader context of changing the world’s economic power structure: the growth of the economic power of West Germany and Japan, a huge resources transfer to oil-producing nations after the oil crisis of 1973–74, and a strong call for a New International Economic Order (NIEO) from developing countries. There was a widespread expectation that the challenge to the US post-war economic ascendancy would lead to some erosion of the dollar’s position as a dominant international reserve and trading currency.
However, the US dollar’s position was not undermined in a significant way throughout the 1970s, and, along with the spread of neoliberal economic policies among the Western developed countries, the dollar retained its global leading role. This outcome was attributed to several factors: the attractiveness and depth of the US financial and trade markets, the country’s geopolitical strength and influence on institutions such as the IMF and the World Bank, and the lack of rival currencies (The Special Drawing Right (SDRs), the Japanese Yen, and the German Deutsche Mark were not at a stage where they could act as international currencies).
This article does not disagree with the conventional explanation, but it is important to recognise the two major challenges the international financial system faced in the 1970s: the worldwide monetary disequilibrium and the financial problems of many developing countries. The expansion of private international money flows, which were promoted by the US’s financial and currency liberalisation, answered these two challenges (Though the transformation of the international financial structure in the 1970s was inimical to the aspirations of the NIEO). The dollar’s reserve and trading role was also key in sustaining the expansion of private finance flows. Of course, the emerging global integration of trade, investment, culture, and information, as well as the recycling of oil-money to Western financial markets, were necessary conditions for the success of the US policy.
Recently, interest in the neglected topic of the international development issues in the post-war international monetary order has been growing. Assessing the developing economies’ problems in perspective, we can cast new light on the restructuring of the post-Bretton Woods international monetary system.
