Following calls by European leaders for a "Bretton Woods II", the Bush administration has invited the "G-20" countries to come to Washington with the lofty goal to reform the world financial system. Will the way we do business change November 15?
The first Bretton Woods conference, held in 1944, gave birth to the International Monetary Fund (IMF), the World Bank and - albeit with half a century delay - the World Trade Organization. The Bretton Woods conference is best known for firmly anchoring the U.S. dollar as the world's reserve currency. As we will elaborate on below, however, the dollar had to be devalued and taken off the gold standard in 1971 because of market dislocations that are not so different from what we are experiencing today.
As of yet, there is no published agenda for the G-20 meeting. German Chancellor Angela Merkel and French President Nicolas Sarkozy call for "genuine, all-encompassing reform of the international financial system." This doesn't sound like we will know on November 15 how the world will be structured in the coming decades. In 1944, 44 governments met for 22 days. Today, numerous competing groups are trying to seize the opportunity to shape tomorrow's world. The November 15 meeting will start a process that may take some time. Don't forget that the U.S. has a lame duck administration and foreign leaders will want to negotiate with the new, not the old administration. It will be interesting to see how much of a running start the new administration can deliver.
The main goal of the conference should be to discuss ways of lowering the risks of a re-occurrence of a similar crisis. Discussions on how to deal with the current crisis should be dealt with separately as the past 18 months have shown that the heat of the moment leads ...