The IMF's New Bretton Woods Moment

Kristalina Giorgieva, current IMF director, gave a speech on October 15, which bore the promising title of "A New Bretton Woods Moment".

Going through her speech, hoping for some hints about the International Monetary Reform, I discovered different things, which deserve our attention.

To better understand the news, let's take a step back. In the 1970s, the two oil shocks saw the price of a barrel soar from the equivalent of $21 in 1972 to $124 in 1980 (source).

Mexico, Venezuela, and small oil-producing countries suddenly saw an unexpected influx of dollars and believed that this heavenly windfall would last forever. These states have therefore borrowed gigantic sums to create modern infrastructures, highways, airports, refineries, etc, and increased their production. The brutal increase of oil prices plunged the developed countries in a recession and the oil demand fell. Because of the oil glut, the barrel’s price went from $124 to $78. At the same time, because of the strong inflation during the seventies, the advanced countries tightened their monetary policies by increasing interest rates. It strangled the indebted countries.

Very quickly, in 1982, Mexico threw a paving stone in the pond, announcing that it could not honor its debt. It was immediately followed by a dozen oil-producing and developing countries. The biggest global banks of the day, and especially in Wall Street, took a huge financial broth. It will take 7 years before a lasting solution is found with the Brady Plan in 1990. This debt crisis generated a global liquidity crisis and a huge speculative bubble in the dollar.

To break this speculation on the dollar, the central banks of the developed countries tried to find a deal, which has gone down in history as the "Plaza Agreements". Instead of allowing currencies to adjust freely, Japan, the United States, Great Britain, France, and Germany agreed to lower the dollar against other currencies. Japan at the height of its economic power at that time, will be the big loser of the Plaza Agreements. The Country has never been out of the crisis since. 

After the Plaza Agreements, the dollar fall in 3 years from 165 to 88 against other currencies.

Remember, China, which has been the locomotive of the world economy for several years, refused "Plazza Agreements 2.0", so as not to suffer the same fate as Japan.

THE COVID-19 CRISIS

In early 2020, an epidemic broke out in China, which will cause the Middle Empire to block its exports and close its borders (following the anticipations of the Rockefeller Foundation of 2010 "Lockstep"). Chinese example will be followed by the dominant countries, imposing very quickly a total blockage of the world economy. Developing or emerging countries will find themselves with their exports blocked and the inflow of dollars suddenly dried up in February-March 2020. Logically, if the reserves of their central banks dry up, these countries cannot honor the due dates of their debts.

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