Consequently, a devaluation war, or the “Beggar thy neighbor policy,” as it occurred in the 1930s, can be avoided if a country experiences a poor economy and the number of countries experiencing balance of payments imbalances increases. In order to prevent a devaluation war, the IMF implemented a fixed exchange rate system, also known as the Bretton Woods system, in which all countries’ currencies were pegged to the U.S. dollar. After World War II, the United States held as much as 70 percent of the world’s gold reserves.
At the conclusion of the Second World War, the Bretton Woods system was established as an institutional framework designed to govern the entire global economy. This system utilizes an international monetary mechanism that manages international commerce and investment using the US dollar as a standard. This means that only the dollar can be used as an international currency and be linked to gold. This pertains to fixed exchange rates and the commerce of the world at the time.
The Bretton Woods Impact
Prior to the establishment of the Bretton Woods system, the 1929–1930s witnessed a global economic recession known as the Great Depression. The event altered the numerous trade barriers in the United States, including import duties, quotas, and other types of barriers. This was due to the 1930 Smoot-Hawley Tariff Act, which made the United States a country that extensively utilized trade barriers. The adoption of the Bretton Woods system served as a response to the aforementioned problems. The goal was to increase the amount of state reserves, which allowed these countries to overcome the Great Depression without the need to implement or carry out a system of deflation, devaluation, or import restrictions. Both devaluation and import restrictions can exacerbate a country’s situation in the long term.
Thus, the existence of the Bretton Woods agreement system reflects the concern of economic policymakers who recall the development of economic growth between countries during the Second World War and foresee a negative trajectory for the economies of these nations.
In addition, after the Second World War, the country’s per capita income grew swiftly and tended to increase in the industrial sector due to increased trade revenues. With a well-organized system of international trade as a consequence of the Bretton Woods conference, there was a significant change in the world trade system during the 1950s and 1960s in terms of the development of new cooperation in international trade. It is known that the total level of non-communist countries’ merchandise exports increased from $53 billion to $112.3 billion at an average growth rate of more than 6 percent per year, and that economic growth in the 1960s was even faster, with an average annual rate of export volume growth of more than 8 percent.
Effects on the Stability of US Hegemony
Gramsci defined hegemony in his writings as a situation in which one group is perceived to be in command and is stronger than other groups (Litowitz, 2000). In order to establish stability and global order, dominant actors like the United States will be able to serve as leaders for other nations. With all of its advantages at the time, the United States became an increasingly influential nation in the economic order of the globe.
The hegemony system is also closely related to the unipolar system, in which one country is viewed as having the most significant and dominant influence in the world order. In addition to its success in combating the Soviet Union after the Cold War, the United States was established as the sole unipolar power after World War II, thanks to its various advantages.
The United States’ dominance will undoubtedly be able to influence and control the operation of the international system, in the sense that every international policy decision will have an effect on various sectors of the ever-changing international economic system. Hegemony, the economic and military authority of the United States, has a significant chance of influencing the nation’s efforts to promote a liberal global market economy.
The United States made an effort to regulate the global economy through the Bretton Woods system because there were no clear rules governing international trade at the time. The success of the United States in creating a new economic order system has also succeeded in giving birth to three international institutions that have a significant role in the current global economic order, namely (a) the International Monetary Fund (IMF) with its regulatory system in an effort to create a world monetary and financial system; (b) the World Bank which has the aim of helping developing countries improve their country’s infrastructure and in order to reduce poverty in the world; (c) the World Trade Organization (WTO) which has the aim and promotion of free trade in various sectors which is intended to eliminate protectionist policies that are happening in various countries in the world.
As the Bretton Woods system continues to operate, interactions within the global economic system are subject to a variety of restrictions but can still expand significantly. This is evident in the early years of the Bretton Woods system, which was established in the midst of each country’s haste to restore economic stability following World War II’s destruction. The rate of economic growth accelerated dramatically. The decade of the 1970s was known as the Golden Age of Capital due to the prosperity of the countries during that time. The prevalence of social and collective services, the government’s emphasis on education, culture, housing, and health, and the precipitous decline in unemployment rates were all observable.