An Agenda for the Next American President

One of America’s fundamental pillars for achieving primacy in the non-communist world from 1944 to 1971 was laid down in the so-called Bretton Woods arrangements — named for the mountain resort in Bretton Woods, New Hampshire, where the 1944 conference took place. The International Monetary Fund was established as a result of this conference. These arrangements pegged the value of gold at $35 per ounce, which at once ordered currency according to the US dollar and established the dollar’s value as the benchmark for global trade. This arrangement was convenient for the United States, for it placed the dollar relationship at the center of global trade and exchange. Yet gold was also marketable. In the wake of the so-called economic miracles of the 1950s and 1960s (the Golden Age of Capitalism, as Eric Hobsbawm called it), the high growth rates and rapid development of Western Europe and Japan enabled them to accumulate millions of dollars as reserves. At the same time, they were developing their respective welfare apparatuses, creating euphoria as much among capitalists as among workers. The United States, on the other hand, in order to finance its Vietnam venture and redress its balance-of-payments deficit, inflated its economy by printing more dollars. As prominent economists argue, from 1960 onward the US balance of payments moved into persistent deficit.¹ This countered the strong opposition of French leader Charles de Gaulle, who realized that the uneven value of the dollar in Europe and the United States was placing a heavy burden on the European taxpayer, who in essence was financing the disastrous US war in Vietnam. Thus, in 1965 de Gaulle demanded gold from the United States in return for supplying $300 million dollars, setting the tone for others to follow. The US gold stock fell from $22.7 billion in 1950 to $17.8 billion in 1960 and to $10.7 billion in 1970.²

One of France’s aims was to support the ecu (European currency unit), Europe’s precursor to the euro, thus creating an alternative reserve currency in the global exchange market. On 7 March 1966, de Gaulle pulled France out of the North Atlantic Treaty Organization’s military structures, further aggravating the situation. It was becoming clear, however, that by the late 1960s the US Treasury was suffering from severe gold shortages, as more and more foreign banks were increasingly demanding gold in return for dollars. Moreover, under pressure by European and Japanese multinational firms, the United States was increasingly realizing that its industrial dominance was withering away. In August 1971, President Richard Nixon cut the Gordian knot — the link between the dollar and gold — a move that basically created the conditions for the dollar to become the only standard against which other currencies could be measured. This was certainly a strategic, well-considered move by the Nixon administration, aimed at restoring the dominance of global US operations by turning the international monetary system into a dollar-standard regime.³ Under floating conditions, the US Treasury could devalue the dollar at will, thus reducing US foreign-debt obligations and boosting exports.⁴ “The dollar may be our currency, but it’s your problem,” said John Connally, treasury secretary under Nixon, addressing representatives from other industrial states in December 1971 at the Smithsonian Institution in Washington, DC.⁵

Now the dollar had no firm backing other than the “full faith and credit” of the US government. From that point on, the United States had to find a way to convince the rest of the world to continue to accept every devalued dollar in exchange for all sorts of goods and services the United States needed to get from other producers. The solution to this situation, however, was found in US oil policy. The Nixon administration realized that if oil trade and the denomination of oil reserves is in dollars, then it would be impossible to spend these dollars on domestic projects alone by the oil-producing states, due to the large amount of money generated by oil’s...