American monetary hegemony

The end of WWII witnessed the recentralization of monetary power in the hands of a United States that had become willing to carry the burden of postwar reconstruction. The United States had emerged from WWII with the ideals of economic interdependence, accountability, and altruism, expressed in the vision of universal multilateralism (above all, multilateralism simply meant nondiscrimination via the elimination or reduction of barriers and obstacles to trade, but more importantly was the maintenance of barriers “that were difficult to apply in a nondiscriminatory manner” (Ruggie, 1982, p. 213)). In essence, the term multilateralism differs today, compared to what it meant after WWII. US interests in a multilateral, liberal world economy would not only be grounded entirely in idealistic internationalism. There was the cold, calculating necessity of generating a US export surplus. This would obviate government spending, stimulate the domestic economy, substitute for domestic investment, and avert reorganization for certain industries in the economy that were overbuilt during the war effort. For these reasons the “idea of an export surplus took on a special importance” (Block, 1977, p.35) for the US. The production of an export surplus was therefore intimately connected with establishing a world economy that was free of imperial systems, as well as bilateral payments and trading systems. The US would therefore aim to open its predecessor’s empire to American trade and to garner British compliance to create its postwar monetary system through financial leverage, namely the Anglo-American Financial Agreement of 1945.
This new vision of universal multilateralism was, however, forestalled by the new economic realities of a war-torn Europe, symbolized by Britain’s financial inability to maintain sterling convertibility. Combined with this new economic reality, was the political-military threat of the Soviet Union. On December 29, 1945, only two days before the expiration of Bretton Woods, Soviet Foreign Minister Vyacheslave Molotov notified George Kennan, “that for the amount [offered] the U.S.S.R. would not subscribe to the articles” (James et al., 1994, p. 617). Two months later, in February 1946, Kennan sent his famous telegram to Washington, which inquired into why the U.S.S.R. had not ratified the Bretton Woods Agreement. The telegram would later be regarded as the beginning of US Cold War policy (James et al., 1994).
The US thus altered its vision from universal multilateralism to regional multilateralism, which it would promote in Europe through the Marshall Plan, the European Recovery Program (ERP), and the European Payments Union (EPU). With the dissolution of the EPU came the prospect of a real multilateral world as the Bretton Woods monetary system came into effect in 1958. The same year marked the beginning of a permanent US balance of payments deficits.