R. Taggart Murphy in New Left Review:

The Bretton Woods system conceived by Keynes and Harry Dexter White in 1944 was more than a simple recognition of the reality that the United States would emerge from the Second World War in a position of overwhelming economic strength and that any workable global financial regime had to start from that premise. It mandated specific institutional action and imf approval to reset the exchange value of any currency in the system vis-à-vis the dollar. 300pxun_dollar_us_1Most importantly, it required that the us maintain both the will and the ability to sell gold at $35 an ounce to foreign central banks on request, which meant that Washington had to take action whenever trade deficits threatened a precipitous loss of gold. When in 1971 the Nixon administration suspended the gold sales, did not use economic tightening to reverse the structural trade deficits, and could neither persuade nor browbeat its trading partners—notably Japan—to undertake compensating adjustments, the system collapsed. But despite a decade that saw the exchange value of the dollar plummet, the financial world continued to revolve around the dollar and does so to this day.

There is every reason for the us to be happy with Bretton Woods ii since Americans reap vast benefits from the arrangement, most importantly in the ability to finance trade deficits with impunity—what French economist Jacques Rueff famously labelled ‘deficits without tears’. Among other things, that allows Washington to project military power around the world at little real financial cost, since the necessary money is first created by the Federal Reserve, then exchanged for goods and services from foreigners, and borrowed back by the us Treasury.us Treasury securities by the central banks of Japan, China, South Korea, Hong Kong and Taiwan. As long as those central banks do not sell these securities (or fail to roll them over when they mature), Washington bears no additional financial burden in mounting a vast military operation, beyond the (relatively) modest interest payments. Taxes need not increase; Americans need not work harder to produce more goods for export or reduce their consumption in order to pay foreigners back the money they have borrowed from them.’, FGCOLOR, ‘#E3E3E3’, BGCOLOR, ‘#000000’)” onmouseout=”nd();” href=”#_edn4″ name=”_ednref4″> [4] (Technically, it does not matter in what form foreigners hold dollars, whether us government debt, corporate debt, equities or anything else with a $ sign. As long as the securities are denominated in dollars they remain within the American banking system, where they serve to create credit in the us.)

More here.