Third Post

In Benjamin Cohen’s article “The Bretton Woods System,” Cohen defines and explains the principles of the Bretton Wood system. Consequently, he demonstrates the implicit benefit that the United States obtains. After reading this article I was intrigued by the information Cohen provided regarding how the two international organizations, World Bank and International Monetary Fund (IMF), work in favor of the United States.

            The Bretton Woods system is an international monetary regime that derived from the end of World War II until 1970’s being defined as “a monetary regime joining an essentially unchanged gold exchange standard, supplemented only by a centralized pool of gold and national currencies, with an entirely new exchange rate system of adjustable pegs” (Cohen 86). From this system two international monetary organizations were developed, the World Bank and IMF. Although these organizations were created to benefit all states, in Cohen’s article and in lecture’s presentation, it becomes apparent that this monetary regime has higher influence on the United State’s hegemony. For example, the primary function of the IMF was to “help states maintain peg to U.S. dollar through loans that would fight inflation or deflation in exchange rates” (Lecture 19). Noticeably, maintaining the peg to the United States’ dollar only benefits the United States, because the dollar is one of the most expensive currencies therefore, other states with lower currency value are subjugated to a higher exchange rate set at the value of the United States dollar. In essence, the state with the less valued currency will receive fewer US dollars due to the high exchange rate. Subsequently, the US dollar can be exchanged for a lot higher amount in a different state. Cohen notes in his article, “in effect, an implicit bargain was struck” (87). Nevertheless, the Bretton Wood system was a primary contribution to the supremacy of the United States.

            It strikes me as rather thought provoking that the purpose of the Bretton Woods System and organizations like the IMF and World Bank is to aid all states yet it evidently benefits only one, the United States. Furthermore, the United States acquired an advantage that allowed them to have the capability to control the financial speculations of the world. Cohen demonstrates three ways in which US hegemony was employed. First, a relatively open market was provided for imports of foreign good. Second, a generous flow of long-term loans and grants was created, such as the Marshall Plan. Lastly, a liberal lending policy was established for provision of shorter-term funds in time of crisis (86). These three principles exemplified the upper hand that the United States had on foreign states through these world monetary organizations. They were able to establish long-term loans, which inevitably put other states into debt with the World Bank, IMF, and ultimately the United States. The open market was also a benefit solely for the United States as well because since the exchange rate was more beneficial to the US dollar, more foreign goods could be purchased. Thus making foreign imports less expensive for US consumers. Finally the liberal lending policy for shorter-term funds in the times of crisis were another way for the World Bank, IMF, and the United States to gain profit. As it states in the article, the revenues from the world monetary organizations where received from the interest given on loans. Therefore the IMF and World Bank, under the Bretton Woods System, were reluctant to grant expensive loans for the sole purpose that the state would owe much more in return. And the United States benefitted from this principle because the currency value is higher so they would not owe nearly as much interest with respect to the amount taken.