A New Bretton Woods An Unlikely Outcome

As the current financial crisis spreads to the corners of the world, many of the world's leaders and important thinkers are throwing out different ideas of how to fix the financial problems that are present in our current markets. This is obviously reasonable because governments will not be able to continuously bailout all the financial institutions that fall into trouble.

One concept that has been proposed that caught my attention was British Prime Minister Gordon Brown's idea to create a new Bretton Woods agreement with the intention to "reshape the world financial system." While this idea has good intentions and might have a beneficial impact, I don't believe that it would be the best response to this financial crisis. A look at the past results of the Bretton Woods system shows that a new agreement would be a short-term response.

The initial agreement helped to restore the international market in the post-World War II reality but this only lasted until 1971 when national interests began to take precedence. When the United States stopped their currency from being converted to gold, the Bretton Woods system crashed. This shows that when it comes to finances, states will usually act in the interests of their citizens before the interests of the international system. This cannot be overcome, simple as that. Domestic politics rule when it comes to the market. So when Prime Minister Brown says that "only by global action can we fully restore the confidence that is needed and build the international financial order", I believe he is wrong.

Instead I believe that more international action will only lead to further problems down the road. If one examines the current financial crisis, it is obvious that the much of the crisis can be traced back to the sub-prime mortgage problems of the United States. The downturn of the US market has affected the foreign markets because of the tremendous amount of foreign investment in the United States. When the US suffers, its investors suffer and thus the trickle down effect occurs.

So what then is the answer?

Well, first of all I do not claim to be an expert or even fairly proficient in terms of economic understanding. I try to avoid economics as much as I can in my studies but as this is almost impossible in studying politics and international relations, I have come to acquire some understanding of basic economics. With this in mind, I believe that the answer to this problem is apparent and is already beginning to show itself.

As of today, the markets are beginning to rebound a little bit across the globe. Much of this has been because of involvement by national governments to invest in their national markets. From this, I conclude that the best way to address the current crisis is for each government to take care of their own markets and not to worry about the economic fortunes of the the international market. I realize this must sound crazy coming from an internationalist and in the current reality of globalization but if each country acts to stabilize their own markets then the international market will begin to stabilize as a by-product. As I said, this has already begun to happen because as national governments begin to act to protect their economies, the markets have begun to rise again.

Furthermore, the already existent international financial bodies (that were created by the original Bretton Woods system) are acting to protect markets. Recently the IMF announced that it would help to protect poorer countries from the fallout of the international financial crisis. This is a tremendous move by a body accused (sometimes by myself) of working for the world's rich countries. The poorer countries of the world are the ones most at risk of suffering from this crisis. They are the ones that would have the greatest difficulty to rebound and so the efforts by the IMF will be extremely beneficial to these already fragile markets. With this in mind, I do not see a reason to create another Bretton Woods organization.

In the end, it is sometimes better to focus on the small things in order to right larger problems. The international crisis is a problem that affects the globe but in order to address it, we must look to our own backyards before building another international financial body.

- blenCOWe