 Delegates attend the Bretton Woods conference in July of 1944 at the Mt. Washington Hotel in Bretton Woods, New Hampshire. Alfred Eisenstaedt / Time & Life Pictures / Getty |
Few people had realize that today it had been 40 years since the end of Bretton Woods a.k.a the Gold Standard system. On August 15, 1971, then President Nixon of the United States, announced the "temporary" suspension of the US dollar's convertibility into gold. By closing the gold window, he effectively ends the Brentton Woods.
Established in 1944 and named after the New Hampshire town where the agreements were drawn up, the Bretton Woods system created an international basis for exchanging one currency for another. It also led to the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now known as the World Bank. The former was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits, the latter to provide underdeveloped nations with needed capital — although each institution's role has changed over time. Each of the 44 nations who joined the discussions contributed a membership fee, of sorts, to fund these institutions; the amount of each contribution designated a country's economic ability and dictated its number of votes.
In an effort to free international trade and fund postwar reconstruction, the member states agreed to fix their exchange rates by tying their currencies to the US dollar. American politicians, meanwhile, assured the rest of the world that its currency was dependable by linking the US dollar to gold; $1 equaled 35 oz. of bullion. Nations also agreed to buy and sell US dollars to keep their currencies within 1% of the fixed rate. And thus the golden age of the US dollar began.
However, by 1971, the US economy was running into troubles. The cost of Vietnam war had a tremendous effect on the US economy. Inflation was running high. Nations began demanding more gold from the US - France, in particular, had repeatedly made aggressive demand for US gold. And also due to other factors, President Nixon then finally decided to end the Brentton Woods for good. This was called the Nixon Shock.
In reality, with the demise of the fixed exchange rate system – and by implication the introduction of the fiat monetary system – it had provided governments the opportunity to pursue domestic policies without tying monetary policy to defending the parity. But, sadly today, many people failed to realize this. People still locked in the gold standard mentality and continue to make fiscal and monetary policies according to defunct gold standard. This can be seen with many nations currently promoting austerity measures.
Without the gold standard, government has the ability to sustain full employment, pursue national development, reduce the poverty gap, provide free healthcare, free education and many things that government ought to be doing. There is no such thing of government being revenue constrained. This include our country, Brunei Darussalam. Our government can aggressively pursue her national development agenda and achieve her 2035 vision. In fact, I sincerely believes that our country can achieved her 2035 vision within 5 to 10 years time if only we realize that our currency is not being tied down to how much oil and gas being sold to Japan and Korea.
