Rethinking Bretton Woods | Sat, Jul 2, 2011
Last June, Center of Concern co-organized the workshop "Back to the Future: The Unfinished Business of 1944 Bretton Woods After the Great Recession." The event was held within the 2011 UNCTAD Public Symposium Making Trade and Finance Work for People and the Planet, which took place in Geneva.
The report from the workshop, published as par tof the official report from the symposium, is reproduced below.
Back to the future: The unfinished business of 1944 – Bretton Woods in the wake of the Great Recession Led by Centre of Concern, World Council of Churches, and United Nations Non-Governmental Liaison Service
59. This session focused on reform of the international monetary system. Centre ofConcern presented the outcomes of a high-level seminar held in 2010, which had identifieda contemporary form of the “Triffin dilemma” (the problems of using a national currency asa global reserve asset) as key to the issues affecting the monetary system today. Otherissues reflecting the need for reform included the absence of adequate mechanisms foradjustment of imbalances and the recessionary bias in the adjustment process, the volatilityof currencies, the limited capacity of the system to ensure provision of liquidity in times ofcrisis, the limited opportunities for diversification of reserve assets, and the lack ofmechanisms for policy coordination.
60. Proposals for better coordination included the establishment of a Global EconomicCouncil under the United Nations. In both cases, the processes would ensure aconstituency-based system. One of the challenges for better coordination was how to ensurethat developing countries maintained appropriate levels of policy space to pursue catch-upgrowth. With regard to capital flows, the proliferation of capital management techniques(including capital controls and prudential regulation) was seen by some as a good responseto the problem of volatile flows. Others pointed to the need for these to be rationalizedthrough some multilateral framework – although where such a framework could acceptablybe housed remained unclear. With regard to Special Drawing Rights (SDRs), there was aneed for a mechanism to increase demand or provide liquidity, as well as to diversifyreserves and broaden the benefits of reserve creation.
61. Another speaker noted that the 1944 Bretton Woods conference had been convenedas a United Nations conference (even though the United Nations was still underconstruction), involving 44 countries at the time (including two colonies) – which revealeda commitment to inclusion that would be desirable to reproduce today. Two maindevelopments had significantly changed the landscape since the 1940s and made reformnecessary, which were globalization and financialization.
62. One presentation highlighted examples of successful monetary cooperation amongdeveloping countries at the regional level. The benefits included alternative provision ofdevelopment finance, and reduction of volatility in intraregional trade. These mechanismshad been conceived (especially in Latin America) to expand sovereignty and policy spacethrough regional cooperation. This was quite different from a gradual renunciation ofsovereignty, and was a key difference from the experience of the European Union whichwas currently undergoing major difficulties.
63. The discussion suggested that perhaps global rebalancing could occur voluntarily,for example through trade-surplus countries raising wages or pursuing expansionarypolicies, but this was clearly not happening enough in the short term. There was thus astrong case for SDR allocations to trade-deficit countries that were otherwise subject toasymmetrical demands for adjustment through recessionary measures. Proposals to modify IMF’s Articles of Agreement for a new regime on capital controls were hotly contested,since this may give the Fund discretion to decide when and how capital controls werelegitimate, whereas the current Article 6 guaranteed that right to all IMF members,including as a permanent feature of a country’s policy toolbox.
Read full report of the Symposium, as well as information on agenda and other participants.