THE AMERICAN DOLLAR AS THE INTERNATIONAL RESERVE CURRENCY: BRETTON WOODS, HARRY DEXTER WHITE, AND THE TRIFFLIN DILEMMA

Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton & Oxford: Princeton U. Press, 2013) ("Keynes would apply his insight in the design of a new global monetary architecture, built around a new international reserve currency--one that would be a threat to the global supremacy of the U.S. dollar and which White was determined to keep from seeing the light of day." Id. at 3. "However, we will see that the primary reason White did not become the institution's [the IMF's] head--an no American has ever since become its head--was emerging revelations of White's activities on behalf of the Soviets." "This is the story of the rise and all of Harry White's blueprint for a new world order, and the vestiges of that fall that we wrestle with today." Id. at 7. "Lend-Lease was greeted with enormous relief in London. [] What Churchill had certainly not understood at the time was how costly Lend-Lease assistance would turn out to be after the war. The Act to Promote the Defense of the United States, as its official name made clear, was not intended as an act of generosity. Roosevelt, who had promised the electorate in 1940 that American 'boys [would not] be sent into any foreign wars,' contrived it as a stopgap means of keeping Germany and Japan at bay; that it happened also to be essential to Britain's survival was largely incidental." Id. at 107. "Morgenthau saw the financiers of the City of London, like those of Wall Street, as a force hostile to the aims of the New Deal. Knowing that the British saw in Lend-Lease not just a means of securing vital wartime supplies, but also a means of conserving precious gold and dollar balances that would prove essential to preserving their empire and influence after the war, the Secretary was determined not too let these balances grow beyond the minimum necessary for Britain to survive the war." "In gauging and monitoring these balances, he was wholly dependent on White, who in Blum's words was 'an ardent nationalist in his monetary thinking,' and sought openly, with the Secretary's approval, to make the dollar the dominant currency in the postwar world.' White therefore also resisted, even 'more vigorously than Morganthau, any deliberate expansion of England's gold and dollar holdings.'" Id. at 108. "The main stated purpose of White's Stabilization Fund would be to reduce, dramatically and perpetually, barriers to international trade and the associated capital flows. The pre-1914 gold standard had achieved both of these aims to an historically unprecedented degree, without any complex, formal international agreement of the sort White was proposing. But the gold standard had been made the bogeyman for all the errors of monetary policy in the 1920s." "The most important of White's aims, however--the one that would obsess him in the coming years--was very deliberately left unstated: to elevate the status of the dollar to that of the world's sole surrogate for gold, such that cross-border gold movements would no longer have the power to dictate changes in U.S. monetary policy. This would be set entirely at the discretion of American experts, and would be transmitted to the rest of the world by way of fixed exchange rates." Id. at 128. "The key problem Treasury faced in influencing public opinion was that the Bretton Woods agreements were simply too abstruse and complicated to engage it. 'There is virtually no public opinion about the Bretton Woods conference,' concluded a report submitted by the Office of War Information to the Treasury.'There is no general discussion of it because there is no interest; and there is no interest because there in no comprehension of the issues involved and the plans proposed, or their importance.' Congressmen did not get it either. As Luxford related to Morgenthau, 'one sympathetic Congressman (Voorhis) had told me that "Congress had no opinion on subject because Congress did not understand it."' Even Fed board chairman Marriner Eccles, a delegate at Bretton Woods, found it all a haze. 'Harry, your plan is so darned complicated,' he complained to White. 'I asked our people to put [it]down briefly in layman's language so I could understand the darned thing, just what it means.'" Id. at 254-255.  "Harry White, simply stated, had been wrong. The United States could not simultaneously keep the world adequately supplied with dollars and sustain the large gold reserves required by its gold-convertibility commitment. In fact, no country could perform such a feat with its national currency. The logic was laid bare by Belgian-born American economist Robert Trifflin in his now-famous 1959 congressional testimony. There were, he explained, 'absurdities associates with the use of national currencies as international reserves.' It constituted a 'built-in de-stablizer' in the world monetary system. The December 1958 European convertibility pledges, far from representing the final critical step into a new monetary era, 'merely return[ed] the world to the unorganized and nationalist gold exchange standard of the late 1920s.'" "When the world accumulates dollars as reserves, rather than gold, it puts the United States in an impossible position. Foreigners lend the excess dollars back to the United States. This increases U.S. short-term liabilities, which implies that the Unites States should boost its gold reserves to maintain its convertibility pledge. But there's the rub: if it does so, the global dollars 'shortage' persists; if it doesn't, the United States ultimately winds up hopelessly trying to guarantee more and more dollars with less and less gold. There is no stable, durable circumstance in which the United States can emit enough dollars to satisfy the world's trading needs and few enough to ensure that they can always be redeemed for a fixed amount of gold. The United States is ultimately damned if it meets the world's liquidity requirements and damned if it doesn't--as is the rest of the world. This became known as 'the Trifflin dilemma." If concerted international action wee not taken to change the system, Trifflin explained, a deadly dynamic would set in. The United States would need to deflate, devalue, or impose trade and exchange restrictions to prevent the loss of all its gold reserves. This could cause a global financial panic and trigger protectionist measures around the world. Harry White's creation, in Trifflin's rendering, was an economic apocalypse in the making." Id. at 333-334. From the bookjacket: "A remarkable deft work of storytelling that reveals how the blueprint for the postwar economic order was actually drawn. The Battle of Bretton Woods is destined to become a classic of economic and political history." Most definitely!!).