Towards the end of World War 2, the Allies came together in 1944 to plan a new economic order for the post-war world. At the conference in Bretton Woods, New Hampshire, 44 Allied countries met under the intellectual leadership of senior US Treasury official Harry Dexter White and British economist John Maynard Keynes. The conference mapped out new rules to prevent countries following the “beggar-thy-neighbour” policies that had led to the Great Depression.
It established the International Monetary Fund (IMF) and World Bank as the key institutions to manage this new world order.
This new structure was initially successful in allowing the world to recover after the war.
The IMF put in place fixed exchange rates based around the dollar, and provided finance to allow countries to make necessary adjustments to their balance of payments provided that they followed sound domestic economic policies.
The World Bank provided long-term loans to allow post-war reconstruction, including in support of the Marshall Plan.
However, since then, many have argued that over the subsequent 50 years the structure of the global economy has changed, exposing the need for a new Bretton Woods.
One of the people advocating change is the former Governor of the Bank of England Lord Mervyn King, who already in 2010, in the wake of the financial crisis, had called for the merger of the G20 and IMF.
He claimed that although much attention was being paid to efforts to overhaul the financial sector, in the meantime the global economic imbalances which fuelled the crisis were worsening.
In a speech at Exeter University, he indicated that in order to fix them, politicians had to transform the multilateral institutions responsible for monitoring the global economy in order to be better prepared for the future.
He pointed out that with so many economies involved in the global trading system, the idea of another Bretton Woods conference was “wholly impractical”.
Lord King suggested the G20 would have been the ideal forum to push through the necessary reforms, instead, urging exporters to spend more and deficit economies such as the UK and US to save more.
He said: “The legitimacy and leadership of the G20 would be enhanced if it were seen as representing views of other countries too.
“That could be achieved if the G20 were to metamorphose into a Governing Council for the IMF, and at the same time acquire a procedure for voting on decisions.”
With the world now facing one of the worst economic fallouts since the Great Depression because of the coronavirus pandemic, Lord King’s claims have become relevant again.
Many are now calling for a new world order, including former Prime Minister Gordon Brown.
In March, the Labour grandee urged world leaders to come together in a “concerted global response” to tackle the coronavirus outbreak and prevent a new recession.
He said the current generation of leaders had failed to learn the lessons of past crises – from epidemics to the financial crash – that global problems need global action.
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In an exclusive interview with Express.co.uk, though, Jonathan Portes, Professor of Economics and Public Policy at King’s College London, argued that while it would be incredibly useful, a “new world order” is an inconceivable scenario for now.
He explained: “It would be very nice, but we are not in a Bretton Woods world.
“It feels more like a pre-war world or a post-war world in some sense – not that I think the US and China will go to war.
“We are not in that position, where you have a desire to set up a new international order.”
He noted: “Could that happen? Maybe, but I really think it is not likely in the short term.
“It seems inconceivable to me, at least while Donald Trump is in power.
“The US and China have become far more confrontational.”
Published at Tue, 12 May 2020 12:57:00 +0000