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Chapter 4 Money: A Financial Enlightenment (3)
Bretton Woods: The Fall of the "Giant"
In 1944, the second battlefield of World War II had just opened, and the European battlefield was filled with smoke.While the eyes of the whole world are focused here, more than 44 representatives from 730 countries of the Allied Powers gathered in the deserted Mount Washington Resort Hotel in the beautiful Bretton Woods County of New Hanalbush, USA. It was so noisy. Fifty years later, a staff member at the time recalled, “From July 50st to 7th, statements, questions and arguments in various languages ​​came from the conference room from time to time. To turn off the lights, to stay awake all night in intense places... ".

What the hell is going on here, what are they talking about?
These people who quarrel all day long seem to be noisy, but in fact they all have a lot of background.Many of them were frequently interviewed by the "New York Times", "The Times" and "Financial Times". White et al.

It is not an exaggeration to say that this small resort hotel is full of big names at this time.The largest of these people was an Englishman.At that time, people would never have imagined that his portrait would not only appear on the covers of the most famous magazines, but his name would also appear on any edition of macroeconomics and monetary finance textbooks in the next 60 years.He is the economist who has had the most influence on the economic policy of modern governments, and probably the most influential economist on the real economy ever, John Maynard Keynes.At this time, Keynes was seriously ill, but he still "ruthlessly drove himself and others to work", and his main opponent at the time, Harry White, an economist at the U.S. Treasury Department, was also on guard, sleeping only five hours a day .

This time, after a full 20-day meeting, the dispute finally came to a result, that is, the famous Bretton Woods system-the world's first global financial and monetary system agreement.

The First World War from 1914 to 1918 destroyed world trade to a considerable extent. The Great Depression of the world economy in 1929 completely bankrupted the gold standard system.In the 20 years between the two world wars, the international monetary system was divided into several competing currency blocs, and the national currencies were devalued and turbulent, because each economic bloc wanted to solve its own international problems at the expense of others. Income and expenditure and employment issues, thus presenting a state of confusion. After the world economic crisis in the 30s and World War II, the economic and political strength of various countries has undergone major changes. The United States has ascended to the status of the leader of the capitalist world, and the international status of the US dollar has been unprecedentedly stable due to the huge strength of its international gold reserves.This makes it possible to establish an international currency system based on the US dollar that is conducive to the expansion of the US foreign economy.

In 1944, the victory of the Allies in World War II was a foregone conclusion. They held a meeting in Bretton Woods, New Hampshire, USA, to discuss the post-war world trade pattern and prepare to establish a new international currency system to promote post-war economic development. World trade and economic prosperity. Representatives of 22 allied countries signed a covenant - the "Bretton Woods Agreement", which stipulated that the US dollar should be the main international reserve currency based on gold.The U.S. dollar is directly linked to gold, and the currencies of various countries are linked to the U.S. dollar, and can be exchanged for gold in the United States at the official price of $35 an ounce.The dollar can be exchanged for gold and countries implement an adjustable pegged exchange rate system, which constitutes the two pillars of this monetary system.This is the Bretton Woods system.

The "Bretton Woods Agreement" also established the International Monetary Fund, referred to as IMF, which is the central institution to maintain the normal operation of the system. It has three major functions: monitoring international exchange rates, providing international credit, and coordinating international monetary relations.At the same time, the World Bank was also created at this time. Its main responsibility is to provide long-term loans and help developing countries provide physical capital.The loan funds mainly come from bonds issued by the World Bank in the capital markets of developed countries.

The formation of the Bretton Woods system temporarily ended the chaotic situation in the monetary and financial fields before the war, and maintained the normal operation of the post-war world monetary system.The fixed exchange rate system is one of the pillars of the Bretton Woods system, but it is different from the relative stability of the exchange rate under the gold standard.The formation of the Bretton Woods system expanded world trade under relatively stable conditions.The United States distributed a large amount of dollars to the world through gifts, credits, and purchases of foreign goods and labor services, which objectively played a role in expanding the purchasing power of the world.At the same time, the fixed exchange rate system largely eliminates the turmoil caused by exchange rate fluctuations, stabilizes the currency exchange rates of major countries to a certain extent, and is conducive to the development of international trade.

An important feature of the Bretton Woods system is that the United States was established as a reserve currency country.This is inseparable from the strong economic strength of the United States, but it is also because of this that it has planted a hidden danger of collapse for the collapse of the Bretton Woods system.

Because the most fundamental foundation of the Bretton Woods system is actually the economic foundation of the United States.If the U.S. maintains a deficit in international payments and the external value of the U.S. dollar is unstable for a long time, the U.S. dollar will lose its centrality; on the other hand, the U.S. must have sufficient gold reserves to fulfill its obligation to exchange $35 for an ounce of gold.If the U.S. loses too much gold reserves and has insufficient reserves, it will be difficult to fulfill its exchange obligations, and it will be unable to conduct market operations and stabilize the price of gold, and the U.S. dollar will fall in value.The foundation of the international monetary system will be shaken accordingly.Because the Bretton Woods system also stipulates that the floating range of the exchange rate must be kept within [-]%, resulting in the lack of flexibility of the exchange rate, which limits the adjustment effect of the exchange rate on the balance of payments.

With the development of history, the disadvantages of the Bretton Woods system are gradually exposed.

The seventh dollar crisis broke out in July 1971, and the Nixon administration announced the implementation of the "New Economic Policy" on August 7, which stopped fulfilling the obligation of foreign governments or central banks to exchange U.S. dollars for gold.This means that the dollar is decoupled from gold, and one of the two pillars supporting the Bretton Woods system has collapsed. In March 8, there was another wave of selling dollars and snapping up gold and marks in Western Europe.On March 15 of this year, the nine countries of the European Common Market held a meeting in Paris and reached an agreement. The Federal Republic of Germany, France and other countries implemented "joint floating" on the US dollar and fixed exchange rates among themselves.

So far, another pillar supporting the international monetary system after the war, that is, the fixed exchange rate system has also completely collapsed.This heralded the final disintegration of the Bretton Woods system.With the development of global economic integration, the situation where the US dollar dominated the world in the past no longer exists.The world is developing towards multi-polarization, and the international monetary system will develop in the direction of free floating exchange rates of various countries, diversification of international reserves, and financial liberalization and internationalization.The single currency system is increasingly difficult to meet the needs of rapid economic development, which is the root cause of the collapse of the Bretton Woods system.

Between promotion and depreciation: Why is "money" worthless

The purchasing power of currency is not static, and the purchasing power of the same currency is not the same in different periods. "Money" is also worthless sometimes.For example, 20 years ago, you might be able to watch a movie for 5 yuan, but now you have to spend 50 yuan.Some people lamented that ten years ago, one hundred yuan was in their pockets, and they were very proud. When they went out to socialize with friends, go shopping, they were more than enough to cope with it, and they were full of confidence.But now when I go out, even with a few hundred dollars in my pocket, I still feel shy.This involves the appreciation and depreciation of currencies.

In fact, there are relative appreciation and depreciation between currencies among countries in the same period.Let's take a look at the most valuable and least valuable currencies in the world right now.

英镑显然是目前世界上最值钱的货币。截至2008年底，英镑对人民币汇率约为1：9.9，即1英镑差不多能兑换10元人民币。

The second is the euro. During the same period, 1 euro can be exchanged for about 9.7 yuan; and with the weakening of the US economy, 1 dollar can only be exchanged for 6.8 yuan during the same period.The pound sterling, euro and dollar are still the three most valuable currencies in the world today.

The three least valuable currencies in the world today are the Somali currency, the Iraqi dinar and the North Korean won.

Jokingly, anyone in Somalia can throw money at you.It is said that a teacup in Somalia costs 500 shillings, and people travel with bags of money.The reason for this is that the situation in Somalia is chaotic, which caused Somalia's economy to be very chaotic for a time.

Next is the new Iraqi dinar in Iraq.The Iraq war brought grave disasters to the Iraqi society and people, and the new Iraqi dinar also fell along with the fall of Saddam Hussein.The black-market trade in oil and gas has further disrupted the Iraqi economy.For people living in Iraq, it is unbelievable that someone burns cables for entertainment.

The North Korean won is not much better.The fall of the North Korean won was directly caused by the United States freezing North Korean bank accounts abroad.At the same time, in recent years, North Korea's domestic prices have soared, even reaching 550% at the highest point.This is the so-called "holding banknotes is not as solid as wrapping steamed buns".

Why is there such a big gap between money and money?This is because the value of a country's currency rises and falls with the level of a country's economy.

The appreciation and depreciation of a currency represent whether the purchasing power of a country's currency has increased or decreased.Appreciation means that the amount of one country's currency exchanged for another country's currency has increased, and the purchasing power of the currency has increased.In the past, it cost 8 RMB to exchange for 1 US dollar, but now it only costs 6.8 RMB to exchange for 1 US dollar.This is the increase in the purchasing power of money.Appreciation is generally a measure taken by a country to resist the impact of foreign exchange and curb inflation.Increasing the gold content of the domestic unit currency or increasing the exchange rate of the domestic currency against foreign currencies, or directly announcing an increase in the exchange rate of the domestic currency against foreign currencies to increase the value of the domestic currency can curb the influx of a large amount of foreign exchange.Because too much foreign exchange will cause excess liquidity pressure on the domestic currency circulation market, which is likely to cause domestic inflation.

Currency depreciation refers to the decline in the value contained in or represented by a unit of currency, that is, the price of a unit of currency decreases.Also known as depreciation, it is the symmetry of currency appreciation.Currency devaluation can be understood from different angles.From a domestic point of view, under the metal currency system, currency devaluation refers to measures to reduce the legal metal content of the national currency and reduce its relative price to metal to reduce the value of the national currency; under the modern paper currency system, currency depreciation refers to the When the quantity of banknotes exceeds the required money demand, that is, currency inflation, the value of banknotes decreases.From an international point of view, currency value is expressed as the ability to convert foreign currencies, which is specifically reflected in changes in exchange rates. At this time, currency depreciation refers to the reduction in the ability of a unit of domestic currency to exchange foreign currencies, and the decline of domestic currency against foreign exchange prices. That is to say, the exchange rate of one country's currency for another country's currency has decreased.For example, after the reform of the RMB exchange rate, the US dollar depreciated against the RMB. Originally, 1 US dollar could be exchanged for 8 yuan, but in 2008 it could only be exchanged for 6.8 yuan.Both appreciation and depreciation of a currency are relative to a reference currency.

Generally speaking, currency depreciation will lead to rising prices in the country.However, under certain conditions, currency depreciation can stimulate production and reduce the price of domestic goods abroad, which is conducive to expanding exports and reducing imports. Therefore, after the Second World War, many countries instead used it as a tool to counter economic crises and stimulate economic development. a means.

(End of this chapter)