Rethinking Bretton Woods – Looking Back to Approach the Future (3/3)
Why rethink Bretton Woods?
Through a series of three articles, the ambitions and buildings of Bretton Woods of 1944 (the US dollar as the world reserve currency, the IMF and the World Bank) are assessed through the prism of six distinct global trends: the doctrine of free market, dollarization of the market, globalization, the paradox of health and quality of life, polarization and the absence of a paradigm centered on nature. The observations will serve as the basis for a Rethinking of Bretton Woods conference, after COP26, in 2022.
This is the third and final article. You can find the first and second article here.
Polarization is the fourth trend under study.
When the Bretton Woods Conference convened, there were two main power blocs demarcated by what Churchill later identified in 1946 as “[f]ROM Stettin in the Baltic To Trieste in the Adriatic; an iron curtain has come down on the continent. But the Western and Soviet blocks, respectively through NATO and the Warsaw Pact organizations, each had their allied members in tow. The conference enabled a rules-based financial outcome, with the USD as the anchor currency imposed on a bipolar global power base.
The world has since become intensely more polarized. A rules-based approach is increasingly giving way to the law of power.
On the international stage, there is the open trade war between the United States and China, Brexit, the emerging questioning of the United States’ unconditional support for NATO, as well as the concomitant intention to withdraw from the United States. the international intervention and buffet approach with regard to the Commitments of the 2015 Paris Climate Treaty. On the domestic fronts, there is the Gilets Jaunes group in France, the Extinction rebellion movement in the acquisition rapid a broad wave in the UK, the use of a brutal global police force against minorities and environmental protesters, and the list continues to grow.
These changing conditions make it much more difficult to quickly reach multilateral agreements on societal, environmental and financial challenges, which are probably more important today than at the time of the Bretton Woods conference.
Lack of a nature-centered paradigm
The latest trend was the lack of a nature-centered approach in both policy making and finance. As Milton Friedman began his neoliberal economic advocacy, the 1972 Report of the Club of Rome, Limits to Growth, has been published. The report fundamentally questioned the emerging model of unlimited material growth, the relentless depletion of natural resources and the resulting impetuous consumerism. The report remained iconic for its cheeky title but was never adopted by a broader government, business or grassroots movement. Observations on the limits of growth were preceded by Rachel Carson’s Silent Spring disclosures in 1962. Carson, an environmentalist, reported how bird populations in the United States were dying because of the widespread use of the synthetic pesticide DDT (dichlorodiphenyltrichloroethane). His discoveries contributed to the creation of the EPA (Environmental Protection Agency) in 1970 and the introduction of the Clean Air Act (1970) and the Water Act (1972). These were, along with the 1987 Montreal Protocol to protect the stratospheric ozone layer, the few successful environmental mitigation responses. Earth Day, launched in 1970 and the full range of the UN sponsored COP, starting with Rio (1992) on the Kyoto Protocol (1997) through to Paris (2015), supported by several IPCC reports (Intergovernmental Panel on Climate Change), have not made a single dent in the global tally of greenhouse gas emissions or ppm CO2 content in the atmosphere.
How could it be otherwise in the face of relentless deregulation, an unethical oil and gas lobbying force, and an international banking system unable to price (carbon-generated) externalities? Sharpe, Miller and Markowitz became Nobel laureates for their work on the Financial asset valuation model in 1990. The model is used to calibrate a company’s cost of equity, which is a critical component of stock pricing and fairness opinion used in merger and merger transactions. acquisition. A complex model using observable market and risk data is however completely independent of a company’s carbon footprint. Today, capital allocation by banks, equity investment by asset managers, and underwriting activity by investment banks still take place on Wall Street and the City without any adjustment for. a company’s contribution to climate risk.
The environment was never mentioned at Bretton Woods. Today, however, there is a total release of 54 gigatonnes of greenhouse gases equivalent to CO2 emissions per year. The atmospheric CO2 reading is 413 ppm CO2, against 300 ppm of CO2 in the early 1950s. UN Secretary General Gutierrez calls the IPCC’s latest climate report a “Red Code for Humanity” based on “compelling” evidence from the human influence on global warming.
As the 1944 conference heralded the shift in world power from the British Empire to the nascent American Empire, a new Bretton Woods convention could herald the transition from an oil and gas-centric monetary aggregate system to a framework for managing carbon reserves that is finite and focused on nature.
The Bretton Woods delegates aspired, after years of war, to stable economic development in both industrialized and emerging countries. In addition, they strived to improve welfare, expand support for public health, and expand free trade, all integrated into a reliable international financial system.
Today, a six-headed crisis, triggered by a public health pandemic, climate change, loss of biodiversity, social injustice, loss of trust in institutions and instability in international trade and financial markets , weighs on the structural foundations of Bretton Woods. There was no way for the delegates of 1944 to anticipate this crisis.
But now the time has come, 75 years later, for a system change and a fundamental paradigm shift in economic thought, guided by a new moral compass. Rethinking Bretton Woods will examine the contours of a new institutional framework that will be organized after COP26 in 2022.
The reflection will focus, with participation and emphasis on the southern hemisphere, around the design of a new economic paradigm, as well as modified governance and an ethical compass to create a new monetary architecture. The resulting monetary policies should offer incentives to redirect capital to various pain points of the crisis, including initiatives to accelerate the 2050 net zero carbon goals through the discovery of prices aligned with crisis solutions.
The emerging regenerative economic and monetary economy would be nature-centered, heralding fair, inclusive and curative management of limited natural capital resources, generating increased sustainable societal health.
This is the end of the third and final article. You can find the first and the second articles here.