It was 50 years ago. On August 15, 1971, by ending the convertibility of the dollar into gold, Richard Nixon signed the Bretton Woods death warrant. Without being fully aware of it – the measure was supposed to be only temporary – the American president sounded the death knell for the so-called “fixed exchange rate” monetary system, designed at the end of World War II, to prevent the return to monetary chaos of the United States. the 1930s and the series of “competitive devaluations – protectionism” which had overcome international trade.
It then begins to fray slowly. And the more time passes, the more the quarter of a century placed under the sign of Bretton Woods appears as a golden age (and of order) irretrievably lost. Several attempts at sealing follow one another. A first agreement between the United States, the EEC, Sweden, Canada and Japan in December 1971 realigned the parities, devalued the dollar by 8% and widened the fluctuation margins. This is not enough to stop speculation against the dollar.
This is still the US currency but it has become the “problem” of the rest of the world, scolds Treasury Secretary John Connally, in response to a worried European delegation. In March 1973, when the game was over, the group of 10 decided to abandon the dollar standard and the currencies began to float freely. A state of affairs ratified by the Jamaica agreements of January 1976.
From the Trente Glorieuses to the “Trente Euphoriques”
The Bretton Woods regime is associated with the Thirty Glorious Years. In comparison, the following decades turned out to be much more chaotic. Marked by financial speculation and the inability of states to coordinate on a lasting basis, they consecrated the domination of the dollar king. The collapse of the Bretton Woods system left the field open to the “Thirty Euphorics” of global finance, as Paul Dembinski, director of the Observatory of Finance in Geneva and professor of economics at the University of Friborg, calls them. .
Three decades marked by a spectacular development of the foreign exchange market, and more generally by a rise in power of logic and the financial sphere. Between 1989 and 1998, the net volume of transactions on the foreign exchange market almost tripled, reaching 1.5 trillion dollars per day. In 2019, during its last triennial survey, the Bank for International Settlements estimated daily currency activity at $ 6.6 trillion.
States have tried on several occasions to intervene, individually and collectively, to limit the damage linked to large variations in exchange rates. But with uneven success. In 1985, the soaring dollar and a gigantic trade deficit decided the United States of Ronald Reagan to come to an agreement with France, Germany, Japan and the United Kingdom to limit fluctuations. This is the Plaza agreement. It was followed by the Louvre agreement in 1987, which secretly fixed an intervention grid for the currencies of G7 countries. Its application, however, does not resist national interests and political shocks such as German reunification or the invasion of Kuwait. In 1993, the Louvre agreement was hardly applied any more.
Creation of the euro
But the general floating of currencies also led to the creation of the euro. In 1972, anxious to protect the economic integration underway since the Treaty of Rome of 1957, the Europeans tried to recreate the conditions of Bretton Woods, with the “European monetary snake”. The currencies are linked to each other by almost fixed ratios (the fluctuation margins are limited to plus or minus 2.5%).
It is a failure: in the face of the oil crisis and the collapse of the dollar, countries are failing to defend their exchange rate. The currencies emerge from the Snake one after the other: the pound sterling in June 1972 (before its historic devaluation of 30% in 1976), the Italian lira in January 1973, and the French franc twice in 1974 and then in 1976.
Prompted by the Frenchman Valéry Giscard d’Estaing and the German Helmut Schmidt, the European Monetary System will succeed the Serpent in 1978. The system, which introduces the ECU (European Currency Unit), is more flexible and resists the second oil shock better. . Another Franco-German couple, François Mitterrand and Helmut Kohl, are working on the establishment of a real single currency and the euro is born on 1er January 1999.
The king dollar
What to compete with the dollar? Not really. Because the very young European Central Bank (ECB) is tracing its attitude on that of the Bundesbank and opts for the greatest neutrality. German traumas weigh heavily on European construction. When the Bretton Woods system collapsed, Deutsche Mark had attracted so much capital that the authorities had to urgently introduce control measures to curb a penalizing assessment for exporting companies.
There is therefore no question for the ECB to act on exchange rates. Result: despite the economic weight of the zone, the euro is not likely to compete with the dollar. Just over 20% of international reserves and debt securities traded on world markets are denominated in euros. This does not prevent the ECB from following very closely the evolution of the international role of the euro and from publishing a report on the subject each year.
Ironically, despite the Bretton Woods collapse and the end of the dollar as the backbone of the foreign exchange market, it has never had such a central place in the markets. Its position has even been strengthened by the last two crises, that of 2008 and the Covid-19. It then acted as a safe haven for investors around the world. It even appreciated by 10% in the wake of the fall of Lehman Brothers, yet the result of the wanderings of Wall Street.