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A New Bretton Woods?

PRINCETON – The chaotic and costly international response to the world’s current financial disorder has prompted French President Nicolas Sarkozy, British Prime Minister Gordon Brown, and German President Horst Köhler, a former head of the International Monetary Fund, to call for a new Bretton Woods Conference in order to design a new global financial system. But such a demand depends on a clear understanding of what a new agreement might provide.

It is easy to see the appeal of scrapping today’s global financial architecture, because there is obviously much that is broken. The existing institutions were looking increasingly irrelevant in normal times, and ineffective in times of crisis. Although the IMF delivered some gloomily accurate figures about the likely cost of the US housing fiasco, it played almost no role in addressing the current crisis. This was the first international financial crisis since the Bretton Woods Conference of 1944 in which the Fund stood on the sidelines.

The major international actor, instead, has been the G-7, a grouping dominated by medium-sized European states in which Asia’s dynamic emerging economies – the current source of global savings – have no representation.

The Bretton Woods conference succeeded not because it assembled every state, or because the participants engaged in an extensive powwow. John Maynard Keynes, an architect of Bretton Woods, believed that the true lesson of the failures of the Depression-era 1930’s lay precisely in the character of the large and chaotic 1933 London World Economic Conference. Keynes concluded that a really workable plan could be devised only at the insistence of “a single power or like-minded group of powers.”