Reasoning on the discussion of introduction of Bretton Woods System
Discussion on the proposal to reintroduce a new version of Bretton Woods System is very rife with quite a number of world leaders supporting the idea. Bretton Woods System as perceived by many, achieved its intended mandate after its formation in1944 (Bordo & Eichengreen, 1993). It was formed to address Europeans countries’ economic problems brought about by World War II which was nearing its end. It met its stipulated objectives of fixing currency parities by choosing the US dollar as the reserve currency. Agreement mechanism of Bretton Woods of 1944 led to the realization of monetary stability and reconstruction of the economy after the war.
Explosion of financial crises since 1997 in different parts of the world has led to fresh calls for reintroduction of Bretton woods System commonly termed as Bretton woods II (Stanley, 2009). Recent crises such as fall of financial markets, lay off of industries, trade deficits and hyperinflation of energy prices many argue may not reoccur if only the Bretton woods System were reintroduced.
In Lyndon LaRouche’s call for reintroduction of the Bretton woods System, he stated that there are five important steps that need to be taken in order to avert future recurrence of similar crises that have been realized in the recent past (Witzsche, 2003). First, he said there is need to adopt a global system like the Bretton Woods System to recover world trade. Next, governments must not try to save derivatives markets from collapsing but should instead protect the people, important trade in science services and hard commodities and produce enterprises. He further asserted that the president of the United States of America should join other governments in putting to an end the existing monetary and financial system and instead embrace a new system. In addition, in order for growth and recovery of the economy to be realized, there is need to protect governments’ debts and credits at all cost and also the production and distribution of essential goods and services should not be discontinued at all.
Bretton Woods System reintroduction has received support across the globe especially LaRouche’s economic policy on Bretton Woods II. The policy has drawn support from tally, Commonwealth of Virginia, European parliament Kentucky of representatives and house of representative of Albania. They are unanimous that reintroduction of a new monetary system would do away with the current hazardous mechanism and thus stabilize currency values. New Bretton woods System has also received support from leading politicians like French president, Britain’s prime minister and Italian president who termed it a global justice movement to address the problem of capital flow (Patomaki, 2001). Proponents of the system say there is need for a new economic system since the current one has failed.
Obstacles to the reintroduction of Bretton Woods System
Despite the success of the Bretton Woods System, there is fear that a new Britton Woods might not succeed since the success of the former lived only a short while. Those who oppose the system argue that it will not be easy to choose the currency that can withstand financial strain. Firstly, coming up with the currency that will be the backing currency of the world’s currencies among the world’s leading currencies may not be possible as many superpowers would want to exert their authority in world trade. United State’s dollar was chosen to be the sole backing currency when the Bretton Woods System was formed. However, due to increase in financial strain the system collapsed in 1971. There is fear that such an occurrence might happen again since there is no surety which currency can survive the storm of inflation and financial strain to avert collapse of the new Bretton woods System.
According to Matai (2008) American was and is still the pillar of the financial system in the globe and the economic crisis affecting such a government will trickle down to other nations raising fear that such a system may not survive global crises. It is for this reason that many leaders are calling for Bretton Woods System reintroduction so that America’s financial crisis might not affect other nations. But the next choice of currency reserve is a challenge as Euro for example is just a decade old and cannot be trusted the same way American dollar is. This means therefore that it might not be easy on the side of US to let go the control it has on the reserve currency (Haberler, 1953).
The public is not aware of the effectiveness of the Bretton woods System and therefore it is likely to lack public support. This can seriously affect the success of the Bretton woods System greatly because for people to use the new currency and exchange rate it must have the support of the people. There is a need for dissemination of information about the new system but even if the public has the information it does not mean they will embrace the system. The system also faces a challenge of finding a balance of coping with the complexity of the global economy and the ability to mitigate any global economic crises (Boughton & Lateef, 1995).
In conclusion many view the system as a major solution to the current economic crisis but fear also reign is some quarters whether the system will not fail as the former Bretton Woods System. It therefore calls for caution and sobriety and appropriate measures that can prevent reoccurrence of such costly failures.
References
Bordo, M., & Eichengreen, B. (1993). A retrospective on the Bretton woods System. USA, University of Chicago press.
Boughton, J., & Lateef, S. (1995). Fifty years after Bretton Woods. USA, International Monetary fund and world bank.
Haberler, C. (1953). Reflection of the future of the Bretton woods system.
Matai, R. (2008). Bretton woods II. Web.
Marson, E. (1973). The world bank since bretton woods.
Patomaki, H. (2001). Democratizing globalization: The leverage of the tobin tax. London, Zed books ltd.
Stanley, M. (2009). Leadership imperatives for a post crisis world. Web.