Madariaga Paper – Vol. 4, No. 12 (Oct., 2011)
Executive Director, Madariaga – College of Europe Foundation
Honorary Director-General, European Commission
"There is an acute need for ambitious multilateral responses to the systemic crisis of international currency and finance. But does such acrisis not constitute an inevitable transition for allowing the redistribution of power and responsibility among declining and emerging powers? A multipolar world needs a strong multilateral base so as to make it economically more fair and effective and geopolitically more stable. China’s option will be decisive. The world is waiting for China..."
"...The current IMS – let us call it Bretton Woods II (created after the breaking up of Bretton Woods I in August 1971 because of the decoupling of the dollar from gold) – is going through an ultimate transition whose end, a Bretton Woods III, is not yet in view; meanwhile it is gradually shifting from a dollar-based to a multipolar currency system.
Bretton Woods I was both an experiment in multilateral governance with the International Monetary Fund (IMF) and the World Bank (WB), and the consecration of the USA as the Western hegemon. It brought together an exclusive club of mostly Western and Northern States with close characteristics: a comparable level of development and, most of them, like-minded countries with regard to the tenets of the market economy. It marked a definitive break with the Gold Standard since currency convertibility was based on fixed but adjustable exchange rates pegged also to gold but through the dollar and last but not least, allowing capital controls. The IMF provided the institutional framework for the IMS and ensured assistance to countries in need. Policy-wise, the IMS rested on two pillars: trade liberalisation through GATT negotiations, and domestic full employment policies. For this reason, it received the appellation of “embedded liberalism” which amounted to “the multilateralising” of Roosevelt’s New Deal which in Europe took the form of the Welfare State.
Bretton Woods I indeed proved a success which culminated in the “Glorious Thirties”. But its growth and welfare achievements mostly benefitted Western advanced economies that succeeded in retaining the three main benefits attached to the colonial and later post-colonial rent: low commodities and energy prices, a monopoly over manufacturing and captive markets for their exports. Today the rise of China and of the BRICS is definitely putting an end to the post-colonial rent. This is a sea change for Western economies confronted with manufacturing outsourcing and off-shoring and with new terms of trade with commodity producers..."