Fall of Bretton Woods

Berkeley model united nations Introductions

Hello delegates,

My name is Madeleine Valdez and I am the head chair of the Bretton Woods committee for BMUN LXVIII. I am a senior here at UC Berkeley studying Political Economy (and Art) and have been a member of this secretariat for all four years I’ve spent here. This will be my eighth – and likely last – year of being involved in Model United Nations overall and I am so glad that I have the opportunity to use this crisis committee as a mechanism for teaching you all about something very dear to my heart: monetary policy.

Many of us who are veterans of crisis committees are too often obsessed with the aggres- sive action-oriented responses to crises. The situations we are concerned with seem to be all about political bargaining or military strategy. I am hoping that this committee will refect the real world by requiring you all to be vigilant in your planning for the future while necessitating adaptation to economic crises.

A little bit extra about me: I am a native of the San Francisco Bay Area and love this place with all my heart. During college, I studied abroad in Madrid and had the opportunity to visit many other large cities around the world. These real-world experiences have informed my major concentration in Urban Development and Globalization, two topics that will defnitely infuence this committee. In my free time, I love to paint and draw, read, watch good movies, and eat good food.

My vice chair, Sachit Shroff, is a fourth-year computer science student with a passion for politics and international relations. This conference also marks his eighth year of MUN, and he’s look- ing forward to a weekend he knows will be flled with lots of exciting debate and creative solutions. When he’s not working or updating himself on the news, Sachit loves to procrastinate by repeatedly watching and reading Lord of the Rings, Harry Potter, and the like an ungodly number of times.

Anish is a junior at UC Berkeley majoring in Computer Science and this will be his eighth year of MUN. He is from Hyderabad, India, although he did live in Los Altos, California for his frst half a decade. In his free time, he enjoys playing and watching soccer, reading Stephen King novels and trying to fnd good Indian restaurants in Berkeley (none so far, unfortunately).

Pari Parajuli is a freshman from the northern Virginia area. She’s done MUN for around 6 years and is so excited to be a part of BMUN in college. She’s planning on doing a major related to

berkeley model united nations 1 computer science and data science with a little public policy thrown in there if she gets the chance! Outside of school, she loves to dance, sketch, cook. She also spends an unhealthy amount of time eating out at places she really can’t afford and watching TV shows.

We are all so excited to meet you all in March for BMUN LXVIII!

Madeleine Valdez

Head Chair, Bretton Woods

Topic A: The Fall of the Bretton Woods Regime Welcome Letter

It is the beginning of 1971 and the disruption of the international monetary system is imminent. For decades, nations all over the world joined together under the system established by the Bretton Woods Conference in 1944, which created the International Monetary Fund and the World Bank to regulate the global economy. But recent whispers have said that everything is about to change. The inability of the United States to carry the stability of the world’s currencies means that this system is unsustainable.

World leaders are calling together a conference, a second gathering of the Bretton Woods stakeholders, to discuss the imminent fall of the system. It will begin March 6, 1971 and will end on March 27, 1971. Delegates will be asked to consider the weaknesses and strengths of the system, what changes need to be made, and how to structure the international monetary system moving forward. The implications of the decisions made in this year, a turning point in the world economy, are sure to ripple out in the decades to come, dictating the future of the global community, and deter- mining the fnancial practices that the next phase of development will be built on.

“The diffculty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

John Meynard Keynes in “The General Theory of Employment, Interest and Money” 1936

berkeley model united nations 2 Topic Background

The events leading up to the Bretton Woods Regime show how the instability in the world was causing concerns in the international community. The increasing interconnectedness created an environment where the actions of one country inevitably would affect another without those actions being checked or regulated. Industrialization changed ideas about productivity and the market, infuencing international trade by widening the gap between one country’s capabilities and another’s. The establishment of an early international monetary system revealed the fragility of the global community and World War I showed how easily the status quo could be disrupted. By examining the history leading up to the Bretton Woods Conference, we can better understand the decisions that delegates made concerning how to regulate the international monetary system and the consequenc- es of those decisions as time went on.

Key Events Nineteenth-Century Global Connections

The nineteenth-century brought about an increase in global connections through specifc historical events that laid the foundation for what is referred to as the modern international monetary system. The migration of people making up a different kind of workforce, the development and de- ployment of products and technology at a faster pace than ever before, and the implementation of normative ideas about society and the economy all worked together to create an intricate web that spanned the whole world over. These connections mirrored the historical phenomenon known as globalization. As countries became increasingly interconnected, the need to adapt to trends of commerce and trade in the international community became increasingly important in order to maintain reputation or attain power.

First, mercantilism and colonialism, as complex as they are in the context of history, globalized the world in a way that was never seen before in human history. Adam Smith’s narrative of liberalism arose out of his exposure to a mercantilist system of government that prioritized trade and corporate relationships over the well-being of its own citizens (Smith). Colonialism, also functioning as New Im- perialism with all its negative connotations, reinforced cross country dependencies while also creating integrated global markets. Both of these strengthened cross capital fows and investments since

berkeley model united nations 3 they required powerful nations to use their own resources to go out into the world, to buy, to trade, to create outposts, to win wars, and to do whatever they thought would bring them proft in the face of the incredible risks they were taking. The places they went – previously economically, culturally independent – were vulnerable and exposed to new experiences in one overwhelming sweep that took place in the span of several centuries. Though history has placed these countries on the losing side, the reality is that their earlier exposures were part of an inevitable trend towards being a more globalized world.

These globalizing encounters are inherently biased towards the region we call the western hemisphere. Nations in East Asia, notably, were going through many of the same developmental phases, though they did so in a more isolated way. Some countries, like Japan, did this more pur- posefully than others. The realities of distance also had a signifcant effect on why more deliberate colonization was inaccessible.

Figure 1

berkeley model united nations 4 Industrialization and the Great Divergence

Though the increasing globalization showed clear differences between nations in terms of abilities and wealth, industrialization into the mid-1800s brought about manufacturing processes that further widened the gap. The Industrial Revolution was largely an isolated event, requiring infrastruc- tural support and the trade of certain goods that benefted mostly Europe and North America. By creating more effcient processes of production but limiting these methods to certain regions of the world, these regions, in particular, were able to maintain power by always having more manufactured goods to exchange for raw goods.

Some scholars say that the Great Divergence – or the widening of the gap between the more developed and the less developed – was largely born out of the Industrial Revolution and the com- mercial revolution even before it. The manufacturing and fnancial infrastructure of countries in the western hemisphere were developed to allow them to overcome the constraints on their growth in the past.

With these trends toward industrialization and development that unevenly occurred in certain areas, some countries began to pull away from others in terms of modern advancement. That is to say, some countries were labelled as more developed than others. The relative strengths of more developed nations – those owning technology that increased productivity more, having fnancial systems allowing for better internal investment and systems of credit, and having more stability in general – beneftted from the imbalance in world economic development. The comparative advan- tages of these nations gave them more bargaining power in situations that would proft them more.

Resources and industry become power and infuence. In order to bargain with those countries in power that produced the manufactured goods or infrastructure necessary to gain wealth by making a competitive proft – countries like the United Kingdom, Denmark, France, the United States – the poorer countries at a disadvantage needed to adapt to their standards of commerce. That meant developing methods of trade using currency or notes that were of an equivalent value (or as close to it as possible) across borders. Such standards were managed by governments as they worked with merchants – an early view of the modern relationship between politics and the economy.

berkeley model united nations 5 The Establishment of an Early International Monetary System

The increased trade, investment, and general cross-country capital fows both necessitated and were necessitated by an international monetary system. The basic system that existed in the pre-modern era was volatile but reasonable enough on a local level. Because of the need for con- sistency across countries, different nations had to collaborate in order to ensure that trade was at all possible.

The gold standard came about as a response to the need for a consistent reference of value that all countries could use. Different nations pegged their currencies to gold (as in you could buy gold for a certain amount of American dollars, or a certain amount of the Pound Sterling) which helped to stabilize currencies and exchange rates. When currencies differed too greatly, it created an opportunity for arbitrage, or the process of buying gold in one country and selling it in another to proft off of the different “prices” of gold (Eichengreen).

For more about the gold standard as an international monetary system, please refer to the corresponding section under “Case Studies”.

World War I

A period of relative peace and the Second Industrial Revolution was ended by World War I at the beginning of the twentieth century. Less so than the war itself, the implication of decisions made during that time and during the interwar period are crucial for understanding the establishment of the international monetary system as it is realized today.

After the war, many nations departed from the gold standard so that central banks and currency backers could create more money for circulation and debt repayments. This meant countries were able to increase the supply of money they needed to rebuild without buying the corresponding amount of gold. Some countries, such as Germany, took it too far and experienced hyperinfation while others, such as the United States, thrived.

Notably, the war had driven a huge divide into regions of the world that were previously peaceful and collaborative. Trade, using currencies backed by gold, was previously decentralized and based largely on a system of trust. It was the lack of a central body and global distrust that contributed greatly to the impact of crises in the interwar period. This can be seen both in the case of

berkeley model united nations 6 German reparations and hyperinfation, and United States fnancialization and the stock market crash of October 1929 (Eichengreen).

International Action Instability

The result of the increasingly globalized world and the hectic international monetary system was an unstable fnancial system. The German hyperinfation and the United States stock market crash mentioned before did not occur in isolation. The events rippled out and had lasting impacts on various regions of the globe.

An earlier example – and a miniature case study to consider – would be the Baring Crisis of 1890, also known as an acute recession. An acute recession is an economic downturn, or a worsen- ing condition of production and utilization of resources, that occurs on a smaller scale than a full- blown recession wherein economic practices may halt completely. This economic crisis was one of the frst examples of fnancial decisions having direct implications on the rest of the world as it trig- gered crisis throughout Latin America. A bank managed by the Baring Bros. in the United Kingdom had underwritten a loan program for investment into Argentina. It had done so without ensuring that the risks it was taking in Argentina were any good given the poor investment opportunities of the nation. The loans soured and were not repaid, leading to the bank’s investors losing their money and triggering a small but signifcant crisis in London. The Baring Crisis showed that unequal information meant that many investors had to rely on the know-how of larger organizations. They did this without knowing for certainty that a bank being a large organization meant that it was a good investment – an example of information asymmetry or cognitive bias. Such mistakes lead to an overall distrust of international fnancial opportunities, something that ended up affecting nations in the geographic region around Argentina, further lowering confdence in South American investment and resulting investment levels.

The Bretton Woods Conference

During World War II and already understanding how the event may have further implications, economists familiar with their recent history came to the conclusion that something needed to be

berkeley model united nations 7 done about fnancial stability on a global level. In order to manage crises like the ones mentioned before and to regulate the international monetary system, several hundred delegates gathered together from July 1, 1944 to July 22, 1944 in Bretton Woods, New Hampshire. Their purpose was to establish an international body, the frst of its kind, to supervise and regulate countries’ fnancial transactions to help prevent bad repercussions from rippling throughout the rest of the international community.

Figure 2

The famed John Maynard Keynes (UK) and Harry Dexter White (US) were the primary thought leaders, though they disagreed very strongly with one another. Keynes is well known for a set of ideas now referred to as Keynesian economics. His belief was that in a short period of time the out- put (production) is most strongly infuenced by demand but that demand does not equal productive capacity of society. More importantly, during the conference, Keynes acted as a proponent for an international currency as the world was growing more increasingly globalized (this idea is discussed briefy again in the next paragraph but should be revisited by delegates more during committee). This idea was ultimately not implemented while White’s approach - which focused on regulatory bodies - became the focus of the conference. In order to satisfy the two economists and to create a compromise for their ideas, they were put in charge of two different committees within the confer-

berkeley model united nations 8 ence, each of which would focus on a different institution (Steil).

Notably, Keynes was one of the earliest to state radical ideas about an international monetary system and was a proponent of an International Clearing Union, which would help, he said, to balance the trade on a global level. He suggested implementing a concept he came up with called “bancor”, which would work as a sort of supranational currency (Eichengreen). These ideas of his, however, were shot down and it was later decided that the United States dollar – backed by gold – would be the currency other countries would peg to. He ultimately managed the committee on the creation of the International Bank for Reconstruction and Development, the original “World Bank”. Many of his values permeated the organization and his lasting impact on it can be seen to this day.

The focus of the conference, the creation of the International Monetary Fund, was managed by Harry Dexter White.

The International Monetary Fund (IMF)

According to the Articles of Agreement, the purpose of the IMF was to “promote stability of exchange rates and fnancial fows”. Signifcantly, it pegged currency exchange rates to gold using the dollar. Countries committed to making their currencies convertible and conformed to various forms of supervision. One example of this is that countries had to tell the IMF if they were going to devalue their currency more than 24 hours before they would actually do it, since devaluation could give nations a comparative trade advantage over their neighbors in the short term while also having a negative impact on the trade of their neighbors (Eichengreen). All of these regulations were incentivized by this rule: in order to be a member of the IBRD (World Bank) and get whatever benefts (monetary or otherwise) that would come with it, they needed to participate in the IMF.

As members of these organizations, countries were required to contribute a certain amount of money, a quota, to the groups. They were incentivized to give even more on top of this as votes within the organization were proportionally dependent on the amount contributed – an aspect of the two bodies that is debated in both ethics and effcacy to this day.

All of this describes the original purpose of the IMF as a supervisory and regulatory body. While the IBRD largely has not changed in its functions (though more bodies have been added to the World Bank Group as a whole), the IMF has changed a lot since 1971 since, after the closing of

berkeley model united nations 9 the gold window and the lessening of its supervisory obligations, its toolbelt became increasingly limited. This should be kept in mind when considering the events to come.

The United Nations

The United Nations was actually established about a year and a quarter after the Bretton Woods conference. Before the different committees of the UN could really have any authority, they needed confdence in fnancial markets. The Bretton Woods organizations were necessary precur- sors to the committees of the United Nations and without their jurisdiction, it is possible that the UN would have a legacy similar to that of the League of Nations.

It was with the creation of these supranational organizations that the idea of development became popular in the international community as a goal for the entire world. The nuances and controversy of what it actually means should be acknowledged in this committee because the - later discussed - fall of the Bretton Woods Regime hinged on its dependency on the United States as a ‘gold standard’. The infuence that the US had on the narrative of development allowed the singular country to dominate the discussions of what the world was supposed to look like.

International Response

After the establishment of the Bretton Woods Regime and the creation of this internationally managed monetary system, the values and the structure of the organizations were tested immediately.

Key Events The Marshall Plan

The Marshall Plan was the popular name for the European Recovery Program, an American led international aid program to help rebuild the economies of the war-ravaged European countries. Over the 4 years that the plan was active after 1948, more than 12 billion dollars in aid were given out (about 125 billion dollars in 2019 dollars). Most of the money given out by the Marshall Plan was in the form of grants from the US Treasury, and so did not have to be repaid. The local businesses that received goods and services via the Marshall Plan did have to pay for them, however, the money they paid went straight to the local country’s government, which could then spend it on other things.

berkeley model united nations 10 A smaller percentage of Marshall Plan benefts were given as loans that did have to be repaid.

It was offcially passed into law by the Economic Cooperation Act, which established the Economic Cooperation Administration to administer the plan. The ECA had offces in each of the 16 countries that were receiving aid through the Marshall Plan and organized the disbursement and usage of the money by talking to local government offcials (Marshall Plan).

The overwhelming public support for the plan in the United States was a result of the belief that communism thrived in poverty. Aid was frst disbursed in Greece and Turkey, which were considered the front lines of the war on communism. A larger percentage of the aid also went to the industrial powers, because their growth was thought to have a spillover effect on neighboring countries. The Soviet Union and Eastern Bloc countries were also offered aid under the Marshall Plan, but the Soviets refused and also prevented countries under their sphere of infuence from accepting aid. The Marshall Plan - as expensive as it was - benefted the reputation of the United States greatly. The nation was able to cement its infuence in other parts of the world through the use of aid. Though this beneftted certain countries greatly after the war, it cemented the United States as an ideological powerhouse, abrupting the balance of power by placing more fnancial responsibility on the US in the years to come and opened the system up to more operational risks.

Increased Involvement

Just as the United States’ infuence on the international organizations was cemented, more and more countries began to join the Bretton Woods organizations. At their founding in 1944, there were only 44 different countries with memberships - and these numbers were largely concentrated in western nations and the nations under their infuence. However, by 1971, there were 123 member states (Center for Financial Stability).

In the 1950s, the majority of countries that joined were Asian and Middle Eastern countries. This mirrored regional movements into increased development and involvement in the global community. The Asian countries of Japan, Korea, and China, in particular, show that increasing connect- edness to the global community coincided with increasing involvement in the regulatory bodies that helped to manage the economy. In other words, they had a policy of planned economies and industrialization as they attempted to close the economic gap and gain more clout in the international community.

berkeley model united nations 11 From the late 1950s and up to 1971, African countries became more involved in the Bret- ton Woods organizations as well. This was partially due to the economic success of other member nations and partially due to the international pressures to develop. This phase of new membership and increased investment in Africa refects the change in the narrative of development throughout the twentieth century. Despite the fact that the world was growing more and more interconnected, the ideology separating a developed “north” from a less developed “south” became more signifcant. The leadership of the most powerful nations during this time suggested the subjugation of less developed nations but wrapped this infuence using the appearance of development assistance. The United Fruit Company was one situation where a corporation, accused of neocolonial exploitation, was assisted by the American government. These sorts of international interventions built on the interests of outside nations have had lasting impacts on these economies up to the modern-day.

The United Kingdom and Balance of Payments

An old, monarchical superpower, the United Kingdom was an original infuencer in the creation of the Bretton Woods organizations. However, as time went on, it pushed the boundaries of the very rules it helped to create. During the 1960s in particular, the UK had a balance of payments issue. Specifcally, problems in the balance of payments arise when one country does not have enough money to pay a different country money (or get paid) in a trade-driven situation. This drained the national reserves and in 1967 the UK deemed it best to devalue its currency.

Under the rules and regulations of the International Monetary Fund, the devaluations of a nation’s currency must be reported to the IMF at least twenty-four hours in advance. Initially, the UK conformed to this by devaluing its currency and warning the IMF in due time, then with an eleven hour warning, and then one hour. The IMF’s inability to do anything in response to this kind of activi- ty pointed to its lack of regulatory authority.

berkeley model united nations 12 The Fall of the Bretton Woods Regime

The Bretton Woods Regime began devolving around 1968 and fnally dissolved in 1973. The year 1971 was the turning point of the system with President Richard Nixon’s closing of the gold convertibility window, but the years preceding suggested problems to come.

[insert: https://upload.wikimedia.org/wikipedia/commons/7/71/Nixon_30-0316a.jpg

Figure 3

The system was overly reliant on the United States’ leadership and its currency. Countries pegged their currencies to the United States dollar, and the United States allowed sums of currency to be exchanged for gold. Through the 1960s, the United States’ dollar underwent several stressful crises; in particular, the Vietnam War and the Great Society programs were pulling more and more money away from the government and pushing more dollars out of the US. The US struggled, under the rules of the regime, to effectively devalue its currency to help pay for the increased costs of functioning. The result of this was the currency’s perceived overvaluation against gold (International Monetary Fund).

In August 1971, Nixon closed the gold window.

berkeley model united nations 13 What if the international community, in the months before, picked up on all the cues and decided they needed to reform the Bretton Woods system? What weaknesses would they change? What worked out the frst time, what changed in the world, what would be better in this new world?

Case Studies The Establishment of the Gold Standard

The gold standard was a monetary system in which countries directly linked their currency values to gold, such that one could buy a fxed amount of gold for a guaranteed fxed amount of paper money. This fxed amount was used to estimate the value of the currency. For example, if the US set the price of gold at $1200 an ounce, the value of the dollar would be 1/1200th of an ounce of gold (Bordo).

The gold standard was adopted across the globe in the 19th century and by the early 1900s, the only exceptions were China, which followed the silver standard, and Persia, which allowed convertibility for both gold and silver, also known as the bimetallic standard. However, the gold standard had different forms in different nations. Some nations, like the US and Britain, allowed gold coins to be directly used as currency. Others issued token coinage and paper currency that could be converted into gold. Some were on full gold standards, where convertibility to gold was automatic, while others, like France, operated on a ‘limping’ gold standard where gold convertibility was at the whim of the authorities, who could also give out silver instead of gold as they still technically had bimetallic standards, even though gold was much preferred.

The major advantage of the gold standard was that it offered price stability in the long run, with an average annual infation rate of 0.1% between 1880 and 1914, since the quantity of gold in the world only grew at a slow pace due to mining. Exchange rates were also fxed since they were tied to the price of gold, due to which price levels around the world moved together. However, for the gold standard to work, central banks around the world had to play by the “rules”. These “rules” stipulated that central banks had to increase their discount rates (the rate at which the central bank lends money to other banks) to facilitate a gold infow or lower their rates to facilitate a gold out- fow based on the situation to ensure that the ratio of price levels in different countries matched the exchange rate (Bordo). The gold standard worked reasonably well until 1914 because the Bank of

berkeley model united nations 14 England, the dominant central bank of the time, played by these rules, ensuring the stability of the gold standard. Then World War I broke out.

World War I required massive infationary expenditures to fnance the war, due to which nations could no longer balance their budgets. Most were forced to suspend gold convertibility in order to prevent their gold reserves from being depleted. After the War, from 1925 to 1931, the Gold Exchange Standard was instituted where countries could either hold gold, dollars or pounds, with the UK and USA holding gold. However, the onset of the Great Depression and the European bank- ing crisis forced the UK off the gold standard, with the US soon following suit in 1933, when FDR nationalized all gold owned by private citizens. However, foreign governments and investors could continue to exchange cash for gold (Eichengreen).

Decades later, in 1971, faced with increasing balance of payments issues as foreign investors cashed in and depleted the US’ gold reserves, Nixon unilaterally ended the convertibility of the dollar into gold, offcially ending any remnants of the gold standard.

The major weakness of the gold standard, one which eventually brought about its downfall, was that it did not allow governments the fexibility to set monetary policy based on the economic situation. For example, when there is a recession, typically interest rates are lowered to ensure that spending increases, which can help pull an economy out of recession. However, under the gold standard, lowering the interest rates would simply cause people to cash out their paper money for gold, due to which central banks, worried about running out of gold, had to increase interest rates, which often further hurt the economy.

Hence, during the Great Depression, the US Government had to keep interest rates high to ensure that people wouldn’t cash out for gold. However, this also discouraged investment and spending, which was necessary to get out of the recession. The government also couldn’t pump money into the economy since any money that was printed had to backed by gold. This infexibility brought the global fnancial system to its knees in the 1930s and forced countries, led by the US and the UK, to go off the Gold Standard, which later led to the creation of the Bretton Woods system.

The Dollar Wall Street Regime

The Dollar Wall Street Regime was the monetary system that replaced the system created at

berkeley model united nations 15 the Bretton Woods Conference. Although it only came into being after the events of this committee take place, the system, which many argue has persisted to today, serves as a good example of a somewhat stable monetary system. Understanding the impetus for its creation and the process by which it was created can help shed some light on the considerations delegates will face in committee as well as the strengths and weaknesses of a different monetary system.

In essence, the early 1970’s saw much frustration with the original Bretton Woods regime. Because the value of foreign currencies was tied to the United States dollar, recovering economies of countries like West Germany and France saw their currencies undervalued by the international monetary system. Meanwhile, a series of wars and global economic shifts away from US dominance meant that the US dollar became overvalued in comparison because, despite sluggish US economic growth that would ordinarily devalue the dollar, the value of the dollar was propped up by the recovering economies of Europe. For many European countries, fxed exchange rates meant that their otherwise-increasingly valuable currency and goods were sold for a fxed price in the US. In the US, this meant that foreign goods continued to appear comparatively cheaper because they increased in real value but could be purchased at the same price. The result was increasing dissatisfaction with the system in Europe, and economic stagnation in the US caused by the inability of domestic business to compete with imported goods that could be purchased at prices suppressed by the fxed exchange rate system. Trade meant that dollars were fowing out of the United States to the countries where goods were cheaper, further augmenting the problem by giving other countries dollars they could not afford to buy American goods with. Eventually, as European economies increasingly began leaving the Bretton Woods system and exchanging their dollar reserves for gold to provide economic independence, the United States’ gold reserves began to empty. To ensure that dollars could still be converted to gold, the government was forced to devalue the dollar. Meanwhile, in Europe, countries leaving the Bretton Woods system saw the value of their currencies rise as they were no longer tied by fxed exchange rates. Eventually, President Nixon ended the convertibility of the US dollar to gold, ending Bretton Woods and creating the Dollar Wall Street Regime.

In the loosely-defned Dollar Wall Street Regime, there is no stable, single currency or good that the value of currencies are tied to. Instead, the value of currencies is dictated by economic market forces, meaning simply that the laws of supply and demand apply. Currencies with higher demand and lower supply increase in value, while those in low demand with lots of supply decrease

berkeley model united nations 16 in value. Demand is determined by the willingness of the market to trade and hold a currency, which often leads to currencies of countries with more stable, successful economies being in high demand as investors are more willing to use and own a currency they believe will hold or increase in value. Supply is determined by the currency put into circulation by governments. Too large a supply, caused by the government injecting cash into an economy, or “printing money,” leads to currency devaluation in the form of infation. Because the Dollar Wall Street Regime sets no controls or guarantees on the value of currencies, currencies can and have fuctuated signifcantly in value. This system, however, affords governments much more freedom when it comes to manipulating their currency. Intentional devaluation can lead, as with Europe in the early 1970’s, to an increase in exports as a country’s goods become comparatively cheaper abroad. Governments also have the option of creating stability or setting prices by pegging the value of their currency to a single or set of foreign currencies. In this way, governments are free to combat the market forces that would otherwise de- termine a currency’s value by accumulating reserves of foreign currencies that back a currency in the event of a local economic shock, much like gold did for currencies on the gold standard.

Over the decades, the system has evolved into a complex currency trading network, dictated partially by governments, market forces, and even private investors. Although this system allows for the freedom of exchange necessary to prevent crises like those of the early 1970’s, its inherent instability and the ability of individual governments to manipulate prices for economic gain has and will continue to raise questions about the system’s sustainability and ethics. Understanding why the Dollar Wall Street Regime was created and its strengths and weaknesses will be key to crafting a sus- tainable and equitable regime in committee that addresses the failings of the Bretton Woods system.

berkeley model united nations 17 Questions to Consider

1. The Bretton Woods organizations are still around, but most don’t understand how their ori- gin shows a different purpose from their current state of being. How have their responsibilities changed? Who is managing their old responsibilities? What responsibilities do you have to these institutions as an infuencer on the state of international monetary policy?

2. How have spheres of fnancial infuence changed from the twentieth century to the twenty-frst century? Which countries currently dominate the global economy? What were these countries doing in 1971? How are you related to these countries? What opinions/predictions do you (as of 1971) have about the balance of power in the world?

3. What is one successful part of the Bretton Woods Regime? What is one failure? How does your perspective in this committee inform why these particular aspects of the system are either success- es or failures? What is one way you could fx one failure?

4. What does development mean to you - the person you represent in committee? How do the policies you advocate for support development? Are you inherently biased? Can you compromise?

5. We know what has happened to the international monetary system since 1971; in the same year, what policies might your position be arguing for? Should the Bretton Woods organizations be ma- nipulated into keeping the status quo? Would your character be ok with the world as it is now?

berkeley model united nations 18 Appendix Technical Background Information

The below section contains some terms that may be useful for delegates to defne for themselves before conference. In addition, many of these terms bring nuance to the issue that will be discussed further in committee blogs. We encourage delegates to both do their own research and refne learn- ing skills as well as to keep up with the news and the committee blog to see how these terms build into an understanding of the topic.

• Monetary policy

• Devaluation

• Balance of payments

• Beggar-thy-neighbor

• Infation

• Stagfation

• Expansion

• Recession

• Tariffs

• Trade Agreements

• Exchange rate

• Dollarization

• Fixed exchange rate

• Floating exchange rate

• Linked exchange rate

• Managed foat regime

• Dual exchange rate

berkeley model united nations 19 • Markets

• Foreign exchange market

• Assets

• Currency

• Foreign exchange swap

• Currency swap

• Foreign exchange option

Committee Jurisdiction

What if, in 1971, world economic leaders realized the fragility of the international monetary system and decided they would hold a conference to address it?

This hypothetical situation is the basis of this committee. We call it Bretton Woods and it may go in one of two directions: This crisis committee will either be known as the Bretton Woods Conference II or the fall of Bretton Woods. Though intended to address a different time and situation, this committee will mirror the original conference by taking place over the course of three weeks. Each day of the conference will be roughly one week (or the proportional amount) starting on March 6, 1971 and ending on March 27, 1971.

Participants will be asked to write a document – one single document for the entirety of the committee – in order to reform the regulatory bodies and the rules of the regime. They must critique the existing structure of the international monetary system and understand what actions must be taken in order to address its shortcomings. By working on one single document, participants will be coming from a realistic perspective on the necessities of compromise and the level of detail required to see legislation or resolutions come to fruition. This must happen while responding to economic crises as they come up during the conference.

During crises, delegates may respond jointly (as a committee) or personally (as an individual delegate) using their appropriate portfolio powers. These will vary given the nature of the committee and the limits of their respective assigned positions – organizational leaders, country delegates, or economic consultants.

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Committee Breakdown

In order to give you an idea of what the committee might look like and who will be participating, we have provided brief overviews of positions in this committee. Papers should utilize this section as a point of departure for research, but more importantly to understand what other attendees in the committee might be. Committee participation should refect both the professional capacities and the personal ideology of these participants. Delegates can be institutional representatives, country delegates, or economists/consultants.

Anthony Barber (Delegate, UK) — A Conservative Party British politician and economist, Barber ironically had a liberal economic policy that allowed for greater cooperation with Europe and the EEC. He increased lending, simplifed taxes with VAT, and suggested more relaxed exchange controls.

Antonio Ortiz Mena (President, IDB) — Mexican economist and previous Secretary of Finance for Mexico, Ortiz promoted stability and industry throughout his career. With the Inter-American Devel- opment Bank, he helped to represent the issues of Latin American stakeholders in discussions on development.

Amartya Sen (Economist) — An Indian economist and professor of economics, Sen is best known for his infuential voice on development economics and social welfare measures. His past work focus- es on experiences in developing nations, particularly India, emphasizing interconnectedness.

Daniel Kahneman (Economist) — Best known for his work in behavioral economics and his work with Amos Tversky, Kahneman is a well known Israeli-American economist. Politically, he’s a proponent of libertarian paternalism. He is active with academic collaboration.

Emiel van Lennep (Secretary-General, OECD) — Van Lennep was a Dutch diplomat best known for encouraging greater international cooperation in the OECD and making it more effective. Before this, he worked in the Dutch Ministry of Finance.

Friedrich von Hayek (Economist) — Hayek was an Austrian economist and political philosopher that was a strong critique of Keynesianism, belonging to the Austrian school of thought. A strong

berkeley model united nations 21 supporter of free markets and an opponent of excessive government intervention, he was active in academia throughout the 1970s.

Jacques Polak (Chief Economist, IMF) — In 1971, Polak was the Chief Economist for the Interna- tional Monetary Fund. A Dutch economist, he is known for his creation of the Polak model and his writings on the balance of trade, exchange rate, and the international monetary system. He believed strongly in international cooperation.

James Tobin (Economist) — Tobin was an American economist famous for his commitment to Keynesian economic ideas. He acted as an economic advisor and on the Federal Reserve Board; at one point, he suggested the “Tobin” tax, or a tax on foreign trade to reduce speculation in currency markets.

Jamshid Amouzegar (Delegate, Iran) — Amouzegar was an Iranian economist and diplomat that served as the Minister of Finance in 1971. During his time in offce during the pre-revolutionary period in Iran, he also helped to head several OPEC meetings.

Johan Beyen (Delegate, Netherlands) — Considered one of the founding fathers of the European Union, Beyen was a liberal politician and Dutch diplomat that helped to promote regional unity by helping to create the European Economic Community. He played an important role during the frst Bretton Woods.

John Richard Hicks (Economist) — Hicks was considered one of the most infuential British economists and was a committed Keynesian. A labor economist at heart, he helped promote the classic, European view of welfare. He is most famous for his IS/LM economic model.

Joseph Stiglitz (Economist) — Stiglitz is an American economist and professor famous for his work on risk aversion and information asymmetry. He is largely considered to be a Neo-Keynesian and has worked on issues concerning international development and international trade in the past.

Karl Schiller (Delegate, Germany) — A West German Finance and Economics Minister, Schiller was an important and generally liberal economist who believed in government involvement in the economy. Politically, he was fexible but still a staunch believer in a market economy.

Leslie Melville (Delegate, Australia) — An Australian economist that helped establish Australia’s

berkeley model united nations 22 central bank, Melville was the leader of the delegation to the frst Bretton Woods. He was active in both international economic and domestic policy, even acting as Australia’s Executive Director for the Bretton Woods organizations.

Milton Friedman (Economist) — Friedman was a prominent fgure advocating for a policy of mone- tarism, for free markets, and against government intervention. In 1971, he was a professor at the Uni- versity of Chicago. Outspoken against Keynesianism, he achieved international fame with his book “Capitalism and Freedom”.

Paul Volcker (Delegate, USA) — Most famous for his economic theory - the Volcker shock - he was Undersecretary of the Treasury for International Monetary Affairs from 1969. He played a key role in Nixon’s decision to suspend gold convertibility, resulting in the collapse of Bretton Woods.

Pierre Trudeau (Delegate, Canada) — The leader of the Liberal Party and the Prime Minister in 1971, Trudeau was a Canadian diplomat and strong believer in Keynesian economic policy. He sub- scribed to the ideas of thinkers such as Galbraith and was a proactive proponent of economic collaboration.

Pierre-Paul Schweitzer (Director, IMF) — French businessman and previous Deputy Director of the French Treasury, Schweitzer had a lot of involvement in the question of European and international cooperation. Under his tenure as director was the collapse of the Par Value system and the creation of special drawing rights.

Rachid Driss (President, ECOSOC) — In 1971, Driss was the President of the United Nations’ Social and Economic Council and a delegate to the United Nations General Assembly. He was involved with the Tunisian Neo-Destour party that eventually changed to a socialist party in the nation.

Raymond Barre (Commissioner, EC) — A famous, conservative French economist and politician, as the VP of the European Commission Barre was able to make a big impact on the European economy. Consequently, he emphasized regional cooperation more than international cooperation.

Robert McNamara (President, WB) — McNamara was president of the World Bank since 1968. The former Secretary of Defense under JFK and LBJ, who oversaw US operations in the Vietnam War. At the World Bank, he focussed in particular on poverty reduction and development programs.

berkeley model united nations 23 Robert Muldoon (Delegate, New Zealand) — Muldoon was New Zealand’s Minister of Finance and a proponent of industrial incentives. He was associated with the economic stabilization seen from a program of expenditure cuts and increases in indirect taxes.

Robert Solow (Economist) — Most famous for the Solow economic growth model, Solow is known to follow the Neo-Keynesian school of economic thought. He has been well recognized for his past experience and held several government positions. In 1971, he was active as MIT faculty.

Roberto Campos (Delegate, Brazil) — Campos was a Brazilian economist and diplomat, active in discussions on international monetary policy and domestic issues. A likely refection of ideological exposure from the United States in the late 1960s and 1970s, he was a strong opponent of state intervention in economic issues.

Shigeto Tsuru (Delegate, Japan) — Tsuru was the Japanese Economics Minister and a professor. Expert in economics, he had connections and educational experiences in both America and Japan, working with different organizations. His experience informed his desire for an international solution.

Simon Kuznets (Economist) — Kuznets was the American economist that won the 1971 Nobel Prize in Economics, and was considered one of the premier economists of the time. He’s involved in the institutional economics school of thought and actively worked with NBER throughout his career.

Valéry Giscard d’Estaing (Delegate, France) — Giscard was the Economic Minister for France. Originally a Euro-Sceptic and supporter of Gaulle, he transitioned more to the center of the spec- trum over time. An economic expert, he was actually prone to shifts in his political beliefs.

Víctor Urquidi (Delegate, Mexico) — Urquidi was a Mexican economist that graduated from the London School of Economics before working for the World Bank, being active in the Mexican government, and acting as a professor. Signifcantly, he was a delegate to the frst Bretton Woods conference.

Zhou Enlai (Delegate, China) — Zhou was a Chinese politician active during the Cultural Revolution and known for helping to carry out the policies of Chairman Mao. He helped to strengthen political ties with the international community, being noticeably friendly with the United States and Nixon in particular.

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