Centralised World Economy. Has it Worked?
The Bretton Woods (New Hampshire) conference in July 1944 placed the United States of America at the centre of the world economy. It did so by adopting the White Plan for the world economy over a plan put forward by British economist Maynard Keynes.
Keynes wanted a world reserve currency called “bancor” administered by a central bank. The central bank would create money for world trade that would have an exchange rate fixed to local currencies. Keynes system had built into it systems to balance that included the increase and decrease of imports and exports between nations so that the country with a deficit exported more, and the country with a surplus imported more.
The White Plan was put forward by Harry Dexter White, then chief international economists for the US Treasury.
The main thrust of the White Plan was the International Monetary Fund. This was to be a fund without any ability to create money, but instead it was to be a depositary of funds contributed by member nations. Twenty five percent of the funds deposited where to be in gold, or a currency convertible into gold, and seventy five percent in the currency of the contributing country.
Effectively the twenty five percent was to be paid in US dollars because the US dollar was the only currency still tied to the gold standard.
If a country ran into financial difficulties it could ‘borrow’ twenty-five percent of its IMF deposit immediately, and if this was insufficient it could request loans in a foreign currency. This meant that a country had to borrow its own money and part of that borrowing had to be in US dollars. And so the US dollar became the world currency.
When the White Plan was adopted it handed control of the world economy to the US banking institutions.
Has the White Plan worked?
The unforeseen effect of tying the world economies to the US dollar is that the internal working of the US economy affects the whole world. The .com crash was largely a US problem, as is the current sub-prime meltdown, caused by US internal mismanagement.
Because most of the world is tied to the US dollar the world cannot avoid the fallout of the US going into recession. Overseas banks have to have a US exposure to maintain US dollar assets if they are to maintain overseas trade. The IMF guarantees world recession if the US goes into recession.
Where to From Here?
There have been rumblings from world leaders about the need for world economic reform. Read that as ‘Scrap the White Plan.’
There is a major push for countries to cut free from the US and regain control of their own economies. In reply George Bush said basically ‘Trust me, I’m the President.’
It is still largely underground in that media sources are quoting the discontent but are not giving the public information on what the real issues are. Maybe the media in general does not yet appreciate the issues surrounding the White Plan.
Where do we go from here? I have no idea. But watch this space. This issue is going to be big.
David Young.