Wally Adeyemo and Joshua P. Zoffer
The world is undergoing a great economic reordering, the third such transformation in the past century. The United States has been at the helm of each one, shaping the global economy in ways that advance U.S. interests. But with each successive shift, Washington has exerted its influence more unilaterally and aggressively, pushing partners away and creating room for adversaries to fill the breach.
The first great reordering came at Bretton Woods, where, in the summer of 1944, the United States used its position of strength following World War II to compel the rest of the world to accept a centrally managed international economic order built around the dollar. Harry Dexter White, the U.S. Treasury official viewed by many as the system’s principal architect, believed an arrangement based on dollars and backed by gold at a fixed exchange rate would promote peace and prosperity through greater trade. Fixed currency parities would ensure global economic stability. Conveniently, this system would also make the United States the world’s economic center of gravity and prevent currency devaluations that could harm American exports. Bretton Woods was multilateral in nature, but it favored the United States.
U.S. President Richard Nixon forced a second reordering when he brought down the central pillar of the Bretton Woods monetary system: the dollar’s convertibility into gold. This time, there was no pretense of cooperation. During the weekend retreat at Camp David, in 1971, when Nixon’s team arrived at the decision to untether the dollar from gold, Treasury Secretary John Connally dismissed concerns that allies would be furious. “We’ll go broke getting their good will,” he chided Arthur Burns, the more internationally minded chair of the Federal Reserve. “So the other countries don’t like it. So what?”
Still, in the months after breaking the global monetary order, Nixon’s team shifted to a more internationalist position. George Shultz, who succeeded Connally as treasury secretary, talked tough in public but was the consummate diplomat behind the scenes. He worked closely with foreign counterparts to negotiate the removal of capital controls around the world, which he believed would further enhance American financial influence. The informal “Library Group” of finance ministers that Shultz convened in the White House library, in April 1973, eventually evolved into the G-7, a cornerstone of international economic diplomacy to this day.
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