The hyperpower's terms of engagement with the world are in flux, says Martin Wolf in the first of two articles LONDON 1ST EDITION

By the late-1960s, however, the monetary order was in difficulties. The US was increasingly unwilling to run the current account deficits needed to secure internal balance in its economy at then prevailing exchange rates. It wanted to abandon the dollar peg to gold and force a general realignment of...

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Bibliographic Details
Published inThe Financial times (London ed.)
Main Author DAVID BUCHAN, CAROLA HOYOS and MARTIN WOLF
Format Newspaper Article
LanguageEnglish
Published London (UK) The Financial Times Limited 18.12.2003
Subjects
Decades
Dollar standard
Economic growth
Economic models
Floating exchange rates
Foreign exchange rates
GDP
Global economy
Gross Domestic Product
International trade
Isolationism
Postwar reconstruction
Success
Trade policy
World War I
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Summary:By the late-1960s, however, the monetary order was in difficulties. The US was increasingly unwilling to run the current account deficits needed to secure internal balance in its economy at then prevailing exchange rates. It wanted to abandon the dollar peg to gold and force a general realignment of currencies. The breakdown of the Bretton Woods exchange rate regime in 1971 was the catalyst for a worldwide inflation. It also led to floating exchange rates among the advanced economies. But continental Europeans responded with a strong desire to preserve pegged rates among themselves. The ultimate result, almost three decades later, was monetary union. Something else was also happening: a change of opinion about the merits of global economic integration. In the 1950s and 1960s, most developing countries, including those liberated from the collapsing colonial empires, followed variants of the Soviet economic model: central planning; and industrialisation through import substitution. The combination of slowing growth, periodic foreign exchange crises and the spectacular success of the more outward-looking Asian economies changed minds. Most important of all was a change in the Chinese mind under the influence of Deng Xiaoping, its paramount leader, after 1978. Others followed, including even India. By the mid-1980s even the Soviet empire was in trouble. The era of reconstruction ended in an overwhelming victory for the US grand strategy. The emergence of the fact that the terrorists behind the attacks of September 11 2001 were mostly Saudis, however, caused deep distrust in the US. Today President George W. Bush is campaigning to democratise Arab regimes. And if that policy proceeds smoothly it could put US relations with Arab oil states on a sounder political footing. But if it tips Arab oil states into revolution, it could be devastating for the world's oil imports.
ISSN:0307-1766