Back to which Bretton Woods? Liquidity and clearing as alternative principles for reforming international money

In the face of the current crisis, there is growing demand for regulation, often invoked in terms of a ‘return to Bretton Woods’. The Bretton Woods Conference of 1944 was indeed the last explicit attempt to define a rule for international settlements. In fact, post-World War II currency negotiations gave place to a confrontation between two alternative visions of the international monetary system. The two plans set forth by the U.S. and by the U.K. embody two alternative principles: the first aims at producing international liquidity on the basis of a reserve currency (White’s plan for an International Stabilization Fund); the second aims at providing a pure means and measure for the multilateral clearing of current accounts in the form of a currency unit (Keynes’s plan for an International Clearing Union). The former has undoubtedly prevailed. However, it is questionable whether it is the most appropriate way to manage global imbalances. Indeed, the principle eventually embodied in the Bretton Woods system, and persisting even after its demise, tends to identify money with a reserve asset, making possible, and even necessary, the accumulation of global imbalances, despite original intentions to reabsorb them. On the contrary, the principle that inspired the alternative plan was intended to deprive money of the character of a reserve asset, thus making it the rule for international exchanges, rather than an object of regulation among others. This paper outlines the two principles both in historical perspective and in the perspective of future reforms, particularly in relation to the recent proposal by the governor of the People’s Bank of China to go back to the principles of the Keynes plan.