Protest and Consensus: a (very) Brief History of the World Bank and IMF
th At around five in the morning on April 16of this year, dozens of finance ministers, economists
and bureaucrats were shepherded from the lobbies of some of Washington, DC‟s swankiest hotels
into an unlikely convoy of armed police, trucks and buses. The sleepy technocrats were in town for long-scheduled meetings of the World Bank and IMF, the international agencies that offer loans and development assistance to many of the world‟s poorest countries. Although such
meetings usually draw little attention, the April convocation had been targeted by tens of thousands of protesters, hoping to reprise the spectacular demonstrations against the World Trade Organization in Seattle last November. The delegates, then, were roused from their slumbers by a shrewd police operation which sought to avoid the disruption and embarrassment dealt to the WTO‟s meetings. If the protesters were determined to disrupt the day‟s activities, the police and
and so the conference attendees were bused delegates would have to start their work by night –
into position under cover of darkness, as if their work was too seedy or criminal to take place by day.
The events in Washington and Seattle have seriously challenged two interpretations of the developed world which had attained the status of orthodoxies. Since the late 1980s, we‟ve been told repeatedly that (serious) politicians on all sides share a basically similar view of economics and politics: government can provide some services, but the market is the most efficient agent in society. We‟ve also been told, in the same period, that political activists have pretty much given up the ghost: people are either self-centered and uninterested in the biggest political questions, or they‟ve taken positions in a balkanized politics of environmentalism, gay rights, gender equality and other issues which compete with each other for the attention of a largely bored or contented public. Put yourself, then, on those pre-dawn buses with the Washington delegates – you belong to a profession which has largely smoothed over some of the big ideological divisions in the past twenty years, in which the savvy operator (like, say, Alan
1Greenspan) can win plaudits and job security from politicians on the right and the left. You‟ve watched a series of centrist parties in Europe and the United States take control of government and sell the public on their moderate beliefs with phrases like „triangulation‟ and „the third way‟. You‟ve worked hard to build relationships with your colleagues (in politics and economics) around the world, to the point where you can converge on the World Bank/IMF headquarters in DC without fear of a Third-World walkout, or squabbles with the Europeans over monetarism. And now, you‟re forced out of bed at an ungodly hour because of thousands – maybe tens of
thousands – of protesters, many of them under thirty, who feel so passionately opposed to your actions that they‟d camp out for days, shout out their lungs, and throw themselves into custody
for the chance to disrupt your work.
The recent protests suggest that something important is going on right now in the way we think and talk about the economy (and, by extension, our political beliefs). In Seattle and Washington, to the horror of cheerleaders of globalization like Jeffrey Garten and Thomas Friedman, the supposedly fractured ranks of political protest presented a united front – union
members walked alongside environmentalists, students marched with gay rights activists and church leaders. The global economy, as represented by the WTO and the World Bank/IMF, has welded these disparate groups into a single engine of protest; and the evidence from Washington suggests that the loose coalition has gained strength from its successes, and will continue its effort across the coming months and years.
The coalition also faces plenty of hazards, however, as it works its way towards a bigger public profile. The loose alliance that‟s formed in recent years against globalization is obviously
vulnerable to internal discord and fragmentation – although union members and Methodist
ministers might pool their efforts to protest the WTO, their respective agendas (and imagined solutions) in doing so might be very different. More ominously, the weight of „respectable‟ opinion is still firmly on the side of the globalisers. Even the putatively liberal media in the US has expressed a knee-jerk disdain for the unpractised enthusiasm of the street protesters, and a fleet of „experts‟ from the op-ed columns and academia has been launched at the first sight of
2trouble, with orders to sink the alternative viewpoints brightly displayed in Seattle and DC.
Perhaps the biggest challenge for the protest coalition, though, is to articulate their own vision of
1 Of whom more anon. Greenspan has raised inscrutability and absolute discretion in his public profile to almost Zen levels, thereby placating his masters on both sides of the political „spectrum‟ and the speculator-investors who are
poised to bet millions on his every pronouncement. Perhaps it‟s just as well that we know so little about the man –
would America sleep as soundly if it knew that Greenspan was a serious fan of Clive Cussler‟s books? 2 Folks like Thomas Friedman and Jeffrey Garten were particularly incensed by the Seattle protests – Friedman
condemned the protesters as “stupid” in two separate op-ed pieces in the New York Times. During the TV coverage of
the protests, there was little doubt which side the networks were on – Lou Waters of CNN concluded an interview with
a riot policeman in Seattle with a cheery “good luck to you out there today.”
a global economy, and to persuade the public that this would work better than the version we‟re struggling with right now. This is a tall order conceptually – the US hasn‟t proven fertile ground
for the nurturing of fundamental economic change, and there‟s a great deal of pressure to accept the „pragmatic‟ course, and to „work for change within the existing system‟, as one might rationalise it to oneself when voting for Al Gore, or whatever. But this positive agenda also seems alien to the spirit and tone of the coalition. In Seattle and Washington, its goal was primarily to shut down the institutions of the global economy: recognising that the WTO, the World Bank and the International Monetary Fund are extremely powerful and diffuse organizations, the protesters concentrated their efforts on sabotage rather than debate. Now that this tactic has paid off, and the American public (along with people around the world) has begun to take notice of the forces opposed to globalization, the protesters must sell their own vision of a just global economy as successfully as they‟ve assailed the reigning order.
From the perspective of the battles in Seattle and Washington, it‟s hard to see the 2000 presidential election as anything but a turf war fought in the political center, with a lot of scripted division and some important divergence in social thinking, but an essentially identical concession
3from both parties to the ascendancy of corporations and the global market. Ralph Nader and Pat
Buchanan, who would certainly challenge the hollow economic triumphalism of Gore and Bush, are unlikely to win a place in televised debates which are funded and controlled by the Republican and Democratic parties; and unlikely to win much airtime by other means without making precisely the concessions to big-business sponsors which have assured the anaemia of the Bush-Gore economic perspective. Against these formidable obstacles to the expression of divergent views, the strategy of the anti-globalization protesters to date seems pretty sound – their
guerrilla tactics have bypassed the formal political system and conveyed their dissatisfaction to a wide audience. But further protests in the same vein may stereotype the coalition as an essentially unruly, nihilistic force. News organizations have been scampering to present this image already, concentrating on Starbucks-smashing „anarchists‟ even as they try to downplay the
preponderance of ordinary working people and peaceful protesters in the crowds. The battle against globalization, then, is at a crossroads – can protesters continue to disrupt the smooth
operation of the economy as they simultaneously promote alternatives? Can they win respect
3 I don‟t want to be totally glib in dismissing the differences between Bush and Gore. The Democrats take more money from some industries (like the investment banking fraternity) than the Republicans, who make up for it with their own favorites (like the pharmaceutical barons of New Jersey). Bush is also much more likely to sign socially-unpleasant legislation into law, or to pack the Supreme Court with people you‟d rather not have to deal with for the next few
decades. But in their basic support for the market‟s right to do what it likes, and their essential abandonment of a whole host of public services to the whims and profits of corporate America, they‟re talking the same language: “Yo quiero mucho, Fortune 500!”
from the public without attaining the „respectability‟ and toothlessness of the mainstream political parties?
Where do we go from here?
If you‟re the kind of person who‟s pretty happy with the way the economy looks in the US right now, and not too interested in whether (a) it looks the same way elsewhere in the world, or (b) it‟s
going to look so rosy in the US for much longer, then you‟d probably be a fool not to cast your vote for Bush-Gore in November, and to join the chorus of media voices excoriating the Seattle and Washington protesters for their immaturity, temerity, anarchy, and so on. If, on the other hand, you have grave doubts about economic justice in the US, and the export of American economic thinking around the globe, you‟re probably sympathetic to the spirit of these street protests, and at least tangentially interested in the kinds of profound changes that these protesters seem to want. It‟s possible that the traditional split in US politics between Democrats and Republicans will be less meaningful in the coming years than this more fundamental divide between those who are happy with the service we get, pretty consistently, from Republicans or Democrats; and those who aren‟t, and are eager for a change. What‟s up for grabs right now is how this more fundamental divide will be expressed, and how it will affect the American public.
One immediate way of entering into this bigger debate is to reject the authority of the technocrats and to make an effort to reacquaint yourself with some basic history and facts about how the global economy is structured, and how it got to be this way. This necessitates a degree of courage, in the sense that the „experts‟ and politicians have been careful to exoticize this kind of
4knowledge, or to suggest that it‟s best left in the hands of the cognoscenti. But it‟s also a
rewarding process, because you realize that a whole lot of stuff that seemed sort-of given and natural isn‟t really either, but instead is fiercely political; and so you make a step towards recognizing that the field of politics, and (by extension) of democracy, is much larger than you‟d
previously thought. This is a necessary process if you‟re to partake in the debate over globalization, and particularly if you‟re to have an answer for the ardent globalists who argue, monotonously, that there‟s no alternative to what‟s happening now.
4 Witness the way that governments in Europe have given away some of their policymaking powers (like the ability to set interest rates) to unelected central banks, often explaining their action by deferring to the markets and suggesting that a technocratic (rather than a democratic) approach is more appealing to speculators, and causes less trouble for a government. Or, closer to home, the way that Alan Greenspan has survived Reagan, Bush and (nearly) Clinton, the Fed‟s answer to Saddam Hussein.
In what follows, I‟m going to move through the history of the World Bank and to the International Monetary Fund, the targets of the Washington protests in April. The Bank and the Fund are particularly important because, pace the protests of April, they have a much more
complicated relationship with the global economy than, say, the World Trade Organization. The history of the WB/IMF reveals a great deal about the direction of the world economy over the past fifty years, and raises some interesting questions about how that direction might be affected by protest and popular challenge in the years ahead.
The IMF and World Bank: founding and mission
The Great Depression of the 1930s convinced the United States that governments had an active role to play in the global economy. Although the Depression had many causes, historians and economists have pointed out that much of the reckless financial activity (stock market speculation, over-lending within big economies like the US, reckless loans to poorer countries (especially Latin America), etc.) flourished in an environment of „free trade‟ and a vacuum of government
5control. Franklin Roosevelt based his New Deal policies in the US on the notion that government had a vital role to play in fostering and controlling economic development; he was also instrumental in arguing for the IMF and the World Bank in 1944, suggesting that international governing bodies could work for the global economy in the same way that his souped-up
6administration controlled New Deal America.
The IMF and World Bank, then, were envisaged as institutions which would be controlled by the US and the other big powers, and which would help to maintain order in the
7global economy. The IMF was a kind of policeman for the new policy of fixing the rates of currencies around the world against each other – the European currencies, for example, were each
5 The big US and European commercial banks, for example, lost a ton of money in the Third World in the 1930s by making loans which corporations and governments there couldn‟t repay. This was bad news for many of them – they
struggled to cover the loans they‟d made, and to keep Western investors from withdrawing their deposits and precipitating a run on the banks; mostly in vain, as it turned out. Widespread bank collapses pretty much nixed the federal government‟s previous rhetoric that banking was best left to the bankers. 6 So the New Deal produced a lot of domestic banking regulations limiting banks to particular states, preventing commercial banks (in today‟s terms, a bank like Chase) from engaging in investment banking (underwriting share deals,
doing currency transactions, selling/packaging bonds, etc. – the kinds of things (again, in today‟s terms) that Merrill
Lynch or Goldman Sachs get up to), and so on. Incidentally, the Clinton administration has been busy dismantling this legislation in the past few years, to the glee of the banking/„financial services‟ industry – but that‟s another story. 7 The „developing world‟, of course, looked very different in 1944, given the preponderance of colonialism, particularly in Asia and Africa. The „international community‟ which met to discuss and finally to draft the agreements at Bretton Woods (44 countries) had patchy representation from what we‟d call the developing world nowadays: only one nation from sub-Saharan Africa (Ethiopia), for example. The same story of a very limited „international community‟ holds for
the formation of the UN a year later.
pegged at a particular rate against the dollar, and were allowed to move around only within a small band before the IMF would intervene and buy or sell the currency accordingly. The IMF would do this buying and selling from a reserve fund, but it was hoped that it wouldn‟t have to intervene so often since currency speculators would realize that they couldn‟t drive the value of a
8currency below its peg, and that the IMF was too powerful to take on.
The World Bank, meanwhile, was designed to offer discounted loans to the economies of Europe which had been ravaged by WWII. Roosevelt and the other architects of the „Bretton
Woods system‟ thought that private banks would be unlikely to make loans to these devastated countries, and that those countries would in any case be unable to afford to borrow at commercial
9rates. The World Bank, then, would channel money from richer governments (predominantly the US) towards poorer governments, on favorable terms and at discounted rates of interest. Countries could only receive World Bank assistance if they agreed to join the IMF, so the two institutions locked in most countries – with the promise either of subsidized lending, or short-
term loans to prop up a currency, or some combination of the two.
The IMF and World Bank were therefore designed not only with specific tasks in mind, but within a specific global economic context: currencies were „pegged‟ to each other and to the
dollar, which made the entire economic system less volatile and more predictable; and the poorer countries (even in Europe) found it hard to raise money from private banks for their development projects (or simply for balancing their budgets and taking care of essentials), and were obvious customers for a non-commercial bank which made loans at subsidized rates. In addition, the United States faced an uncertain world order, and was keen to ensure that it used its economic power to keep as many countries (or at least governments) on its side as it faced down the Soviet
8 All sorts of factors affect the value of a particular currency, and currency values have a huge influence on the competitiveness of a country‟s exports, the things it can import, etc. The post-WWII thinking basically asserted that it was a better idea to fix these values internationally, rather than to let them „float‟ around at any level. This was, of course, before the currency speculators (people who make it their business, in a nine-to-five sort of way, to buy and sell currencies in the hope of making a successful bet on which way they‟re headed) took over the store – more on that later. 9 Again, remember that the big commercial banks (or, at least, those still standing) had been badly burned in the 1920s/1930s, and had a big and recent sense that lending to the „third world‟ could be disastrous. There‟s no profit to be made out of usurious rates of interest if you can‟t get any money out of a debtor. 10 The Soviet Union and its satellites stayed out of the IMF/WB since conditions were attached to the loans. John Maynard Keynes, the legendary economist (and member of the British delegation at Bretton Woods), had argued against making loans conditional on particular economic policies in debtor countries; but the US delegation overruled him, which pretty much confirmed the Soviets in their suspicion that the IMF/WB were all about shoring up capitalism, rather than facilitating capitalism, socialism or communism.
Changing circumstances: 1945 to 1982
In the three and a half decades following the founding of the World Bank and IMF, these original circumstances changed dramatically. In the first place, the United States became interested in many third-world countries which had previously been off the map for US policymakers, given the new anxiety about Communism and an extension of Soviet influence. Although the World Bank was staffed by representatives from a myriad of countries, its president was always American, and its policies were very heavily influenced by the political and economic muscle of Washington. Given a US fear of Communist encroachment in south and south-east Asia, Africa and Latin America, the World Bank was therefore encouraged to make development loans to countries beyond its original European focus. The bank disbursed large sums to governments throughout the developing world, usually attaching conditions to those loans which determined what they were to be used for, or the economic policies of the government which agreed to
The World Bank in this period was simultaneously an agent for change and development in the developing world, and an instrument of US foreign policy. Historians have noted the importance of these development loans to many of the world‟s poorest countries, and have conceded that many third-world nations would have struggled to raise money from private banks during this period. On the other hand, the US was selective about the kinds of programs it was happy to support, and the kinds of governments it would lend money to (through the World Bank). Many of the „anti-Communist‟ dictators in Africa and Latin America were kept in power thanks
to preferential treatment from the World Bank, and other governments which were rather more democratic could find their room for economic maneuver constrained by conditions attached to World Bank loans. For example, developing countries were routinely asked to concentrate on development projects which would make more efficient their export of raw materials and commodities; but developing governments were frequently interested in developing an industrial base beyond these raw materials, and escaping their usual dependence on the prices of those materials which were set on Western exchanges. There was therefore a tension between the
11 Thus the WB would lend to a particular country because it was of strategic value to the US (like Egypt, or Zaire, or Indonesia), in spite of the repressive and/or corrupt government of that country. (Usually the repressive government made the lending process a whole lot easier – WB reports around the late 1960s were always puffing the Indonesian
government for its cooperative stance, apparently oblivious to the fact that the same government had just killed around half a million of its own population.) The issue of corruption within developing countries is very important, but I‟ve
largely avoided it here. Most of the truly corrupt governments in the 1960s and 1970s, the governments which ran up huge loans from the West and blew or salted away this money in Europe, were especially undemocratic. There‟s a
really crucial issue here about accountability – can the IMF/WB, or private banks for that matter, hold people in the
aspirations of these developing countries, which sought to compete with the West on an equal footing, and the priorities of Western countries (which controlled the World Bank), which were eager to avoid massive industrial development in the Third World which might lead to local
12competition for established Western industries/corporations.
In the 1960s and 1970s, therefore, developing governments had some access to cheap loans, but had often to swallow onerous conditions to get their hands on this money. Those governments with a rhetoric of industrial development had a problem, then: new industries would cost a fortune to establish, but the most obvious (and preferred) source of cash (the World Bank)
13would probably turn down any requests for this kind of loan. Developing countries thus looked
around for other sources of lending. As it happened, the big commercial banks in the West had started to wonder if they weren‟t being too cautious in their steering-clear of the third world, and
those employees who remembered vividly the disastrous debt crisis of the 1930s were slowly disappearing (through retirement, or death) from the corporate ranks. The Western banking industry in the 1950s and 1960s was beginning to think once more about lending as a source of profit rather than a kind of service; and this idea moved from loan-pushing in the US (the explosion of consumer credit, for example) to a more aggressive courting of potential third-world
14borrowers. Put yourself in the shoes of a third-world government: you have a rhetoric of national development and industrialization which stresses your forward-looking philosophy, your desire to escape from dependence on the West, etc. You have ambitious plans to build an automobile industry, or to produce your own steel, or to make planes, or whatever. You have no capital to do any of this, and the World Bank is dragging its heels on any loans which don‟t get
directed specifically to your traditional economy – getting gold out of the ground, or harvesting
sugar, or producing cattle, or whatever. And then these commercial banks from the US and Europe try to sell you on the idea of „non-political‟ lending – the patter goes a bit like this: “Why
third world responsible for loans that were taken out by corrupt governments which they had no say in electing? Unfortunately, the answer for all practical purposes is yes. 12 Many Latin American countries were particularly interested in escaping from dependence on commodity exports, and the varying prices for commodities set (in the West) on the international exchanges. The policy of trying to develop an industrial base and to redirect an economy away from cash-crop or raw material exports is called (sorry about the jargon) import-substitution industrialization, or ISI for short. 13 ISI is really expensive because you have to take a big loss on the initial investment in training, equipment, and so on; you also have, usually, to put up some kind of tariff barriers (see note 16) to ward off cheaper goods (say, snazzy American cars which might compete with your new and not-so-snazzy Brazilian cars) from abroad. This makes countries like the US super-pissed and even less likely to give you WB money; so it‟s back to the private banks and their usurious/„market‟ rates of interest. 14 When I say „courting‟, I really mean it. These commercial banks would actually hire people to go around developing countries looking for „lending opportunities‟, in much the same way that you get bombarded these days in America with junk mail offering you credit/money. You don‟t have to be rich to get these offers; if you‟re not in prison, you‟re a target market. You‟ll tend to receive more of this mail at times when the banks are keener to push their loans. As of yet, you don‟t actually have people wandering from door to door offering you loans, but that‟s effectively what big US and
European banks did in the third world in the late 1960s and especially the 1970s.
should you listen to the World Bank? Why let those guys tell you how you should develop? You
15make the choices! It‟s your loan!”
And so the bargain was struck. The World Bank offered the best kind of loans, but they came with strings attached. The commercial banks offered crappier loans (they came at higher rates of interest, in shorter maturities, etc.), but they didn‟t insist on political/economic conditions,
16like a removal of tariffs. So you could borrow hundreds of millions of dollars from, say, Bank of America or Citibank, and invest in your top-of-the-line (and extremely inefficient, at least in the first instance) aviation plant, but you soon found an increasing proportion of your GDP going back to these Western banks in interest repayments. Thus the 1970s – a period of ever-crazier
borrowing and lending, with both sides (Western banks and developing governments) caught in a spiral. For the governments, the higher rates of interest forced more and more borrowing, eventually leading to loans taken out pretty explicitly to pay off interest from previous loans; in addition, the possibility that these expensive new industries (which the loans had originally funded) might some day turn a profit, and turn the tide of all this borrowing, shimmered in the
17distance, underwriting more loans. The banks, on the other hand, found themselves in a double-
bind. First, the chronically slow growth in their traditional lending markets in the 1970s (Europe and the US) reduced the number of customers for their loans; but the high rates of inflation in the West also forced them to lend out their deposits at high rates of interest, or the money in their
18vaults would actually depreciate as it sat there. Second, they threw good money after bad in an
effort to keep their debtors solvent. On some level, every bank has an interest in keeping its creditors solvent – once they go belly-up, the bank has to admit that the loans were bad, and often to write them off. Writing-off loans is about the least-favorite activity of bankers, and they‟ll go
15 You‟re probably familiar with this sort of rhetoric if you‟ve ever received a credit card offer in the mail – notice that
they always tell you that the loan will set you free, where „freedom‟ equals a new car, or a holiday, or something else that sounds kind-of nice but usually costs money that you don‟t have. You‟re in charge! until you start paying it back... 16 Tariffs – the rates of duty you‟d slap on imports to try to prevent cheaper goods from, say, the West from flooding your markets and undercutting your efforts to sell your own country‟s cars, or steel, or sewing machines, or whatever. 17 The people who pioneered ISI – often very talented technocrats and economists – were certain that, if you gave these
new industries long enough, they‟d at last become competitive not only in their home country, but also on the international market. So you‟d be able to drop your tariffs without any fears, since not only would your own population
want to buy its own goods, but you‟d look forward to selling your competitively-priced goods all over the world. Given
the massive head-start of Western industry, and the substantial benefits of better funding and more lavish research agendas in the West, this prospect of the developing countries catching up with the first world always remained in the distance. 18 This is the answer to the very good and simple questions: “If lending was so risky, why lend at all? Why not just
leave the loot sitting around in the vault?” When the inflation rate is close to 10%, lending at high rates of interest stops
being just about profit, and instead constitutes a kind of investor/corporate rush-for-the-lifeboats. A lot of the cash in these bank vaults actually came from „petrodollars‟, money invested by Middle Eastern potentates who were getting rich fast on the back of the oil boom. These guys were good customers but they were also creating the problem (oil price rises causing more inflation in the West) which made it hard for the banks not to lose their money, just by sitting
to great lengths to avoid it; even in situations where the bad loans stretch into the billions of
While all this was going on with the World Bank and commercial lending, the IMF was also experiencing major changes. Its original mission – to provide top-up loans on a short-term
basis to (richer) countries in temporary economic difficulties – had been altered in several ways.
For one thing, the IMF had begun to extend money to developing countries, helping them to overcome balance-of-payments deficits. In addition, the basis for the entire Bretton Woods system – a series of currencies linked to each other at fixed rates, attached also to a dollar value tied to the price of gold – collapsed in the early 1970s. Problems in the US economy – the
slowdown in US growth, the explosion in US spending on the Vietnam war, and the oil crisis –
forced President Richard Nixon to close the „gold window‟, and to remove the one concrete value
20which had anchored the entire global financial system. Instead, the dollar and other currencies
started to float freely against each other, and the IMF was no longer engaged as a point of principle in sustaining currency bands and keeping currencies at a particular level. Currency speculators and other traders could now buy and sell most currencies freely, which contributed to
21a more unstable international system, and more fluctuations in the value of currencies.
At the beginning of the 1980s, then, the global economy was in a state of near-disaster, and the hopes for the World Bank and IMF had been largely dashed. The World Bank was now lending less money to the developing world than commercial banks, which had become trapped in a debt spiral whereby they pushed ever larger loans on poorer countries which had no means to pay back the interest, let alone the principal sum owed. Developing countries found it harder and
19 I should also say that this market in loans to the third world is terrifyingly complicated – it‟s not just a case of a bank
lending to a country (or a corporation or individual within that country); there‟s also a very loosely-governed source of
capital, known as the Euromarket, which channeled cash to poorer countries in the 1970s when it had trouble lending this money to the First World, which was mired in recession. We can cut some corners in getting our heads around this, however – it‟s basically private banks, and some public institutions (IMF, WB, Western governments), lending money to poor countries. 20 In practical terms, speculators had driven down the value of the dollar, and were actually trying to cash out in gold –
to get their paws on gold bars (real shiny gold bars, like in the movies), in the knowledge that the dollar was overvalued and they‟d be getting a good deal on this gold. Nixon, meanwhile, realized that the basis of the system – that the entire
dollar supply could be redeemed in gold, if the need arose – was no longer viable, since there were many more dollars
in circulation than could be converted into gold. So Nixon declared that the dollar would no longer be fixed to a „gold peg‟, and would float freely on the international markets. In other words, the dollar would only have value against other currencies, rather than against a tangible substance like gold. This also meant you could buy and sell as many dollars as you wanted to, nudge the value of the dollar (and other currencies) up and down quite substantially, and so on. There was no longer any government or institution committed to keeping currencies at fixed levels; just the IMF to intervene in emergency situations with short-term loans. The early 1970s, then, were very good years to get into the currency speculation business. (See note 8 on the weird nine-to-five-ness of this job.) 21 In some respects, this new system of floating currencies was a very bad thing – it meant that countries were much
more vulnerable to currency speculators. However, the US argued that it simply couldn‟t underwrite the entire global economy anymore with its gold reserves; moreover, the argument that the market was now king enabled many governments, even in the midst of economic difficulties, to deny responsibility for what was happening – not wholly
implausibly, as it turned out. If this all seems pretty fatalistic and irresponsible, you‟re right – it is.