BF2S Forums Bretton-Woods 2.0?

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.

On 15 August 1971, the United States unilaterally terminated convertibility of the US$ to gold. This brought the Bretton Woods system to an end and saw the dollar become fiat currency. This action, referred to as the Nixon shock, created the situation in which the United States dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as GBP, for example), also became free floating.

In the wake of the Global financial crisis of 2008, policymakers and others have called for a new international monetary system that some of them also dub Bretton Woods II. On the other side, this crisis has revived the debate about Bretton Woods II.

On 26 September 2008, French president, Nicolas Sarkozy, said, "we must rethink the financial system from scratch, as at Bretton Woods.”

What is needed is an international approach, led by the United States, China and Japan, channeled through the International Monetary Fund, and perhaps considered at an international conference — Bretton Woods II.

Such a conference would examine the need for revision of current international exchange-rate arrangements, focused on but not limited to the euro. It might require that all monetary unions with incomplete fiscal consolidation have a mechanism to adjust individual members’ exchange rates, like the Exchange Rate Mechanism, not the euro. It could discuss how to restrain the growth of unsustainable debt, perhaps increasing creditor rights and imposing limits on international market access and support from central banks. It could also address measures to stimulate the global economy.