Since the end of World War II, the U.S.

dollar has enjoyed a unique and powerful position in

international trade. But perhaps no more.
Before boarding a plane on Saturday to meet President eorge W. Bush, !rench President
"icolas Sar#o$y proclaimed, %&urope wants it. &urope demands it. &urope will get it.% 'he %it%
here is global financial reform, and e(idently Sar#o$y won)t ha(e to wait long. *ust hours after
their closed+door meeting had finished, Bush and Sar#o$y, along with &uropean ,ommission
President *ose -anuel Barroso, issued a joint statement announcing that a summit would be
held ne.t month to de(ise what Barroso calls a %new global financial order.%
'he old global financial order is, well, old. &stablished in /011 and named after the "ew
2ampshire town where the agreements were drawn up, the Bretton Woods system created an
international basis for e.changing one currency for another. It also led to the creation of the
International -onetary !und 3I-!4 and the International Ban# for 5econstruction and
6e(elopment, now #nown as the World Ban#. 'he former was designed to monitor e.change
rates and lend reser(e currencies to nations with trade deficits, the latter to pro(ide
underde(eloped nations with needed capital 7 although each institution)s role has changed o(er
time. &ach of the 11 nations who joined the discussions contributed a membership fee, of sorts,
to fund these institutions8 the amount of each contribution designated a country)s economic
ability and dictated its number of (otes.
In an effort to free international trade and fund postwar reconstruction, the member states
agreed to fi. their e.change rates by tying their currencies to the U.S. dollar. 9merican
politicians, meanwhile, assured the rest of the world that its currency was dependable by lin#ing
the U.S. dollar to gold8 :/ equaled ;< o$. of bullion. "ations also agreed to buy and sell U.S.
dollars to #eep their currencies within /= of the fi.ed rate. 9nd thus the golden age of the U.S.
dollar began.
!or his part, legendary British economist *ohn -aynard >eynes, who drafted much of the plan,
called it %the e.act opposite of the gold standard,% saying the negotiated monetary system would
be whate(er the controlling nations wished to ma#e of it. >eynes had e(en gone so far as to
propose a single, global currency that wouldn)t be tied to either gold or politics. 32e lost that
argument4.
'hough it came on the heels of the reat 6epression and the beginning of the end of World War
II, the Bretton Woods system addressed global ills that began as early as the first World War,
when go(ernments 3including the U.S.4 began controlling imports and e.ports to offset wartime
bloc#ades. 'his, in turn, led to the manipulation of currencies to shape foreign trade. ,urrency
warfare and restricti(e mar#et practices helped spar# the de(aluation, deflation and depression
that defined the economy of the /0;?s.
'he Bretton Woods system itself collapsed in /0@/, when President 5ichard "i.on se(ered the
lin# between the dollar and gold 7 a decision made to pre(ent a run on !ort >no., which
contained only a third of the gold bullion necessary to co(er the amount of dollars in foreign
hands. By /0@;, most major world economies had allowed their currencies to float freely against
the dollar. It was a roc#y transition, characteri$ed by plummeting stoc# prices, s#yroc#eting oil
prices, ban# failures and inflation.
It seems the &ast ,oast might yet again be the bac#drop for a massi(e o(erhaul of the world)s
financial playboo#. U.". Secretary+eneral Ban >i+moon publicly bac#ed calls for a summit
before the new year, saying the agency)s headquarters in "ew Aor# 7 the (ery %symbol of
multilateralism% 7 should play host. Sar#o$y concurred, but for different reasonsB %Insofar as the
crisis began in "ew Aor#,% he said, %then the global solution must be found to this crisis in "ew
Aor#.%
See 'I-&)s Pictures of the Wee#.