Evolution of the international currency between World War II and the Cold War

 
After World War II (1939-1945), the powers of the old capitalist such as Britain and France were weakened and they lost their status as first-class powers. Thus, the United States took advantage of the war to become the number one overlord in the capitalist world.
In July 1944, a world currency system centered on the US dollar was established, it is called the Bretton Woods system. Since then, the US dollar has become the center of the international currency system and the equivalent of gold. The establishment of the Bretton Woods system made the US dollar became the means of payment for international settlement and the main reserve currency of all countries. It ended the chaos of the international currency system before World War II and promoted the steady and orderly development of the world economy.
However, there are internal contradictions in the Bretton Woods system, which American economist Triffin called "Triffin dilemma" in 1960. It shows that no matter whether the balance of payments of the United States is surplus or deficit, it will bring difficulties to the operation of the Bretton Woods system (Li Zhao, 1998).
In 1968, an economic crisis broke out in capitalism, the United States was forced to implement the ‘dual price system of gold’, which meant that the Bretton Woods system was destroyed (XianLei Wang, 1998). After that, many countries adopted a floating exchange rate system for their currencies, which was no longer linked to the US dollar, which further accelerated the disintegration of the Bretton Woods system (Li Zhao, 1998). The crisis of the Bretton Woods system has accelerated the reform of the world currency system.
In March 1976, the Board of Governors of the International Currency Fund passed a resolution formally announcing the implementation of the floating exchange rate system, and at the same time, gold was no longer used as the only international means of payment. This led to the complete collapse of the Bretton Woods system, and a new international currency system based on the ‘Jamaica Agreement’ began to take shape, which is called the Jamaica system. 
Jamaica system has both advantages and disadvantages. The advantages are that it promotes the healthy development of the world monetary system and has great flexibility and adaptability. The disadvantage is that it obviously lacks restriction and coordination ability, which means it is a relatively loose international currency system.
Although the US dollar suffered heavy losses with the collapse of the Bretton Woods system, it is still in a dominant position in the international currency system. Jamaica system has not destroyed the function of the dollar as the world currency, and the dollar was still the most important world currency at that time. In the Jamaican system, the US dollar, Deutsche Mark and Japanese yen become world currencies together (JiaDong Dong, 2000). At that time, most people thought that the Japanese yen and Deutsche Mark were expected to keep pace with the dollar, but this was not the case. When the new economic policy of the Clinton administration was promulgated, Japan's bubble economy burst and Germany lagged behind in high-tech competition. Therefore, it is increasingly difficult for the Japanese yen and Deutsche Mark to resist the strength of the US dollar.

By Ziqi Li



References List:
[1].Li Zhao, (1998), Introduction to world economy.

[2]. XianLei Wang, (1998), Contemporary World Economy and Euro.

[3] JiaDong Dong, (2000), International economics.



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