When the world economy heads into crisis, the international currency system often breaks down. This occurs either because debtors can’t meet their obligations, or because creditors fear they are not being repaid in sound money. The first condition exists today in the euro zone; the second is likely to emerge in the China-U.S. relationship.
The global monetary and financial system hasn’t maintained financial stability as well as the Bretton Woods system of fixed currencies and needs to be reformed, according to a Bank of England research paper.
Both the international monetary system and American fiscal policy began to change in the 1960s. The system developed at the United Nations Monetary and Financial Conference, held in Bretton Woods, New Hampshire, in July 1944, fixed exchange rates to a dollar backed by gold. It worked successfully for years. But it couldn’t last forever.
It took decades for negotiators to write treaties that curb nuclear warheads and settle trade disputes between nations, and by that measure, efforts to limit global warming may just be getting started.