The Bretton Woods conference established a highly regulated international currency system. The United States dollar was established as the international currency fixed at the rate of $35 per ounce of gold. The cornerstone of the system was the establishment of fixed exchange rates between the major currencies. In order to prevent the type of competitive devaluations and disruptive currency fluctuations which had caused such devastation in the 1930s, the International Monetary Fund was established to provide funds for those countries experiencing difficulties in their balance of payments. The International Bank for Reconstruction and Development (the World Bank) was set up to provide funds for long-term loans for the reconstruction of the economies of Western Europe.
The establishment of a system of fixed currency rates necessarily presupposed the regulation of international capital movements by the central banks and the political authorities of the national state. The history of the demise of the post-war monetary order is also the history of the breakdown of this national control over finance capital and the rise of an international financial system.
For the Bretton Woods system to function, the United States had to supply dollar liquidity to the rest of the world, through the financing of private capital investment by US corporations and government loans and aid. These dollars were utilized, in turn, to finance the balance of trade surplus of the United States with the rest of the world. Embodied in this arrangement was a fundamental contradiction: it was based on the economic supremacy of the United States over its rival capitalist powers, on the one hand, while on the other, the consequences of its operation were to strengthen the rest of the advanced capitalist nations and relatively weaken the position of the United States.
These contradictions first began to emerge towards the end of the 1960s in the form of a gold crisis. Underpinning the entire system was the guarantee by the United States that dollars would be redeemed out of the gold stock at Fort Knox at the rate of $35 per ounce. In the first years of the 1950s, the amount of gold leaving Fort Knox was negligible, as dollars were always in demand to pay for much-needed exports from the US. But as European and Japanese industry began to revive and then expand, there was a diminishing relative demand for US exports and the stock of dollars outside the US began to grow relative to the gold that backed them. In 1958, for the first time, the dollars held by foreigners exceeded the US gold stock.
The decade of the 1960s was marked by a deepening crisis of the Bretton Woods system. American gold stocks, which stood at $18 billion in the 1960s, were declining at a rate of between $0.5 billion and $1 billion per annum. But in the year 1964-65 gold stocks fell by $1.5 billion, as the de Gaulle administration in France opened a war against the US dollar. By 1968 the gold stock had fallen perilously close to the level of $10 billion, considered the minimum necessary for the functioning of the Bretton Woods system. US gold stocks were now around half what they had been in 1950.
In response to the mounting gold crisis, President Johnson attempted to impose a series of restrictions on the outflow of American capital in 1968. But the very imposition of these measures led the US banks to discover ways to evade exchange controls. Their actions laid the foundations for what has now become an international financial system operating outside of the control of any national state or group of central banks.
The origins of this new system lie in the emergence of the so-called Eurodollar market in the 1950s. This consisted of initially small amounts of dollars held in the European banks and the European branches of American banks. So long as the Bretton Woods system operated relatively smoothly, the bulk of these dollars were used to purchase exports from the United States. But towards the end of the 1950s, as the demand for US exports declined relatively, the pool of Eurodollars began to grow.
This development led to the emergence of a Eurodollar lending market the floating of loans by banks from their holdings of dollars outside the US. The Eurodollar market was to expand rapidly in the latter part of the 1960s, as the US administration sought to control the outflow of dollars from America, and multinational companies, eager to acquire funds to invest in Europe, and banks, equally eager to accommodate their demands, sought ways to escape these controls.
With the final breakdown of the Bretton Woods system in the period 1971-73, the so-called Eurocurrency markets soon comprised a world financial market dealing in currencies outside the nation-state that had issued that currency. And the greatest single force bringing this about was the US multinational corporations and banks which sought ways to undermine the attempted controls of the most powerful imperialist state.
There are many examples from recent history showing how the national state has had to submit to the pressure placed upon it by international financial markets the Callaghan government in 1975-76, the Mitterrand government in 1982-83, Brazil and Mexico in the 1980s. One of the most recent experiences was the withdrawal of Britain from the European currency arrangements in 1992, in which British banks played a key role in the selloff of the pound.
The Spartacists’ insistence that international financial institutions are merely the agencies of the imperialist states flies in the face of one of the central features of the capitalist economy: the basic conflict between the unbounded geography of profit accumulation and the bounded political geography of national states.
Like the rest of the middle class radical fraternity who were fascinated by Mao’s slogan “all power grows out of the barrel of a gun,” the Spartacists are dismissive of the financial power exercised by the IMF and other financial institutions, because they do not possess weapons and an army.