Closing the Gold Window: The End of Bretton Woods as a Contingency Plan

• Author: Christoffer J. P. Zoeller
• Published date: 01 March 2019
• DOI: 10.1177/0032329218823648
• Date: 01 March 2019
• Subject Matter: Articles

https://doi.org/10.1177/0032329218823648

Politics & Society

2019, Vol. 47(1) 3 –22

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DOI: 10.1177/0032329218823648

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Article

Closing the Gold Window:

The End of Bretton Woods

as a Contingency Plan

Christoffer J. P. Zoeller

University of California, Irvine

Abstract

In August of 1971, President Nixon announced that the United States was “closing

the gold window,” bringing an end to the postwar system of international exchange

rate stability and precipitating a period of significant uncertainty and transformation

in global institutions. Although this critical historical episode is important for

an understanding of historical “neoliberalism” and institutional change, modern

sociological perspectives have scarcely been applied to it. The present analysis uses

archival data to show that closing the gold window was never the goal or preferred

strategy of the Nixon administration, which had spent years preparing much more

modest reforms. Nevertheless, US policymakers took this unilateral action as a

contingency plan to achieve a short-term goal, knowing that it would dramatically

change the functioning of the international economy. Surprisingly, the autonomous

structure of the IMF did not channel US initiatives toward gradual evolution but

rather helped determine a radical change in strategy.

Keywords

Bretton Woods, International Monetary Fund, institutional change, neoliberalism,

economic policy

Corresponding Author:

Christoffer J. P. Zoeller, University of California, Irvine, 3151 Social Science Plaza, Irvine, CA, USA.

Email: czoeller@uci.edu

823648PASXXX10.1177/0032329218823648Politics & SocietyZoeller

research-article2019

4 Politics & Society 47(1)

The three decades leading up to the global economic crisis that began in 2007 were a

time of rapid economic change, marked by a series of crises and innovations that

became the basis of what we think of as global neoliberalism today. Many of the

changes in the international economic landscape have had to do with international cur-

rency markets. In 1992, George Soros infamously took a roughly $10 billion position

against the British pound, forcing a devaluation that profited Soros at least a billion

dollars from his short sale. Soros was similarly implicated in the Asian currency crises

of 1997. Events such as these have raised questions about the empowerment of private

and international actors over sovereign governments, and liberalized currency markets

have been at the center of concern. Although Soros’s very public embarrassment of the

Bank of England sparked an important conversation on the topic, it was hardly an

unprecedented event. Not only private individuals such as Soros but also major banks,

multinational corporations, and sovereign governments had been making similar use

of international currency markets since the 1970s.

These actors have often operated by in fact contributing to exchange rate volatility

in order to profit, and they had been doing so for at least two decades before the infa-

mous Soros maneuver. In the 1970s, private banks became more heavily invested in

developing economies and increasingly leveraged on foreign currency positions.

Flows of investment capital into and out of developing economies took on a more

speculative character during that time, as international investments rapidly increased

in volume and volatility. In turn, just as the “neoliberal” era has been marked by the

rise of international monetary profiteers, there have been major losers as well. The

1970s are well known for the acceleration of fiscal crises in the developing world,

crises that were often exacerbated by speculative capital flight from the looming pros-

pect of currency devaluation. This pattern was of course marked by the accumulation

of ever-greater levels of foreign debt, held significantly by private banks and the

International Monetary Fund (IMF), and by the increased use of “conditionality” in

IMF loans. The 1970s, therefore, are well documented as a period of major upheaval

in the international economy, centering significantly on international currency mar-

kets. What enabled this upheaval?

Before and after Soros and the wave of structural adjustment programs through the

IMF, antiglobalization movements have risen and been repressed. Academic debates

about the very nature of “globalization” and its consequences have ebbed and flowed

as well. Global flows of finance capital have already allowed the greatest economic

crisis of the new century. Underlying all this, however, has been an international sys-

tem predicated on liberalized currency markets. It might sometimes escape our mem-

ory that the world was previously governed by a system of fixed exchange rates.

Throughout the postwar period, exchange rates were fixed in place by an institutional

regime known as the Bretton Woods framework, in which the IMF guaranteed

exchange rate stability by way of the US dollar’s convertibility to gold at a fixed price.

Many of the developments alluded to above were predicated on or exacerbated by the

breakdown of that international monetary order. This breakdown is known as the end

of Bretton Woods, marked by President Nixon’s 1971 announcement that the US

Treasury would be “closing the gold window”—ceasing the exchange of dollars for