The Consolidation of Dollar Hegemony After the Collapse of Bretton Woods: Bringing Power Back in

Abstract

ABSTRACT Conventional views on the collapse of Bretton Woods suggest that it resulted from its own limitations. The inability of the United States to manage the system given the growing imbalances associated to the need of persistent current account deficits to provide liquidity in dollars, and the resulting inflationary pressures on the one hand, and the increasing disproportion of dollars and gold reserves, on the other, would bring about the end of the system. In other words, the Triffin Dilemma was ultimately correct, and the exorbitant privilege came with a high price tag. The limitations of the dominant view about Bretton Woods are discussed and it is argued that the end of Bretton Woods was a political decision that led to the consolidation of dollar hegemony. The limitations of the conventional view are ultimately tied to mainstream economics.