Recently, on several occasions, French President Nicolas Sarkozy has proposed a new Bretton Woods. At the Dovas conference the resurrection of Bretton Woods system astonished journalists, albeit not the first time being spoken of by Mr Sarkozy. "The prosperity of the post-war era owed much to Bretton Woods ... we need a new Bretton Woods" he said.
Since the collapse of Bretton Woods in 1971 there are calls for a new international financial system to cope with the volatile exchange rate system and more recently the financial crises. Some economists are convinced that most of the financial turmoil was caused by unrestricted cash flows. The fixed rate structure was used to prevent the countries from reducing the values of their currencies. However, some countries found that it was difficult to deal with trade deficits. To those surplus countries, the accumulated foreign exchange reserves have been invested in domestic market or aboard. During the Bretton Woods period the reserves rose 55% from 1949 to 1969, but considerable amount of 2000% from 1969 to 2000. Such amount of money helped assets rocket up and bubble.
Back to the current financial crisis, in 2008, the UK Prime Minister Gordon Brown asked for a new international Bretton Woods system to prevent a similar crisis from occurring in the future.
"we must have a new Bretton Woods - building a new international financial architecture for the years ahead."
He expected to build a new international system to regulate the financial institutions and improve transparency by reforming the IMF into the "global central bank". Mr Sarkozy, also as the then president of EU, put forward the idea of Bretton Woods.
Later in the G20 meeting in Washington, 2008, world leaders discussed the financial crisis and the establishment of an international financial structure, however there was no substantial agreement about a new Bretton Woods.
In fact, after the collapse of the Bretton Woods in 1971, Asian countries, like China, Hong Kong, Japan, Singapore, South Korea re-established a system similar to that Bretton Woods. Through the pegged exchange rate to US dollar, these currencies were undervalued to stimulate exports particularly to the US market. Although there exist some problems in this regional Bretton Woods, the economy development of Asian countries are still admiring.
Another reason for introducing a new Bretton system might be the ambition of moving the global financial centre from US to another place most likely the EU. After World War II, as the strongest economic entity over the world, the US helped the recovery of the world economy and simultaneously promoted itself by being the centre country in the international monetary system. The meltdown of the US economy in the current crisis may be a great opportunity to snatch the global centre back from the US.
The obstacles and lessons from the past experience
However even with applause and support from financial experts and political leaders came hardly any substantial progress in achieving an international agreement of new Bretton Woods system.
There are noticeable obstacles to introducing such a new system. Because of the high-speed development of the global economy in the last half century and more and more tortuous political events, it is impossible to reach a consensus in the next few months, even years. First let us compare the circumstances between the previous Bretton Woods and now.
The Bretton Woods agreement in 1944 was a real exception after recalling a great deal of failures of other proposals in modern history. Thanks to the Great Depression and especially, the United States was the only country holding the necessary resources to remake the world. Although the current financial crisis was disastrous, it is not comparable with Great Depression.
In addition, the then host country of US is culprit rathe