Replacing Bretton Woods Institutions?

What Canada’s PM has called a “rupture” in the world order has precipitated discussion for a new Bretton Woods – apart from BRICS earlier forays in the world’s financial architecture. Bretton Woods was the venue of the meeting of world powers held in the US in 1945 as WWII was winding down, to propose a mechanism for global finance that would address the breakdown that led to the Great Depression of the 1930’s.
Bretton Woods created firstly the International Monetary Fund (IMF) to promote global monetary cooperation; to provide short-term financial assistance to countries with balance-of-payments problem and to maintain exchange-rate stability. Secondly, it launched the International Bank for Reconstruction and Development (IBRD) which became the World Bank Group. This was to rebuild countries after World War II and finance long-term development projects (infrastructure, education, health). One of the initiatives of the World Bank was to produce a fixed exchange rate mechanism based on the convertibility of dollars into gold at US$35/oz.
The financial crises of the 1970s, 1980s and especially that of 1997-1998 and 2008 all led to calls for a new Bretton Woods but all resulted in palliatives which were not even observed in the breach by the dominant countries. Power prevailed. For instance, the so-called “Asian Crisis” at the end of the 90’s and the 2008 global financial meltdown precipitated calls for banking reforms that included strong regulatory supervision. Yet in the US, financial regulation and supervision were discarded and the in the free for all, financial institutions went into an orgy of speculation and leveraging that is now threatening to bring the entire world on its knees.
But even though Bretton Woods is now extolled with nostalgia that is manifested in calls for its reincarnation, we must remember that the regime it unleashed failed by 1971, when the US announced the cancellation of the free convertibility of gold for dollars. That failure was ultimately the result of the US refusing to accept the suggestion of John Maynard Keynes, the then pre-eminent economist, for a supra-global financial regulatory institution rather than the US dominated IMF and World Bank that issued. Power trumped intellect then and most likely will trump it again.
There are some who see a crucial role for China, with its US$ trillions of reserves and infinite factories. There is a parallel being drawn, on one hand, between the ailing Britain and its sterling currency of 1945 and the US with its dollar today, and on the other hand between the new China with its unbelievable reserves and the US with its trillion dollar annual deficit today. But there are at least two flaws with this analogy. Firstly, even if China were to feel confident enough to flex its economic muscle as the US did in 1945 at the first Bretton Woods, we would simply be repeating the dangers of placing all the world’s financial eggs in a basket supported by a small conclave of powers and in the end dominated by one. Such an arrangement will inevitably lead to further meltdowns as the essential supervisory powers of the new regime are applied asymmetrically: there is the old conundrum of “who will guard the guardians?” Secondly, the US today is not in the position of Britain of 1945: it still has immense capital, military and political reach. The dollar will not be displaced as easily as the sterling was at this time.
What will most likely emerge in the near term is pressures for China to allow its currency fall in value. Compensating proposals to broaden the representation on the boards of the IMF and World Bank to include China and diluting Europe’s role. China will not seek to rock the world’s financial boat too much by challenging the US frontally at this point since it is not in its interest to destroy its primary market – not to mention the value of its reserves.