August Leo Liljenberg

February 24, 2025

---

“The master-economist must possess a rare combination of gifts…He must be mathematician, statesman, philosopher… He must study the present in the light of the past for the purpose of the future.“ – John Maynard Keynes

---

bretton woods, new hampshire, united states of america, 1944

Lord Halifax leant over and offered some words of reassurance to the celebrity economist seated next to him: “In Washington, it’s true that they have the money bags, but we have all the brains.”

Elected to a life-fellowship at the age of 26 at King’s College, Cambridge, without having ever formally studied economics, John Maynard Keynes’ broad intellect made him both a provocative and widely influential figure. His ability to combine theoretical insight with practical foresight made him the obvious choice as architect of Britain’s post-war economy.

It was in this architectural role that Keynes was sent across the Atlantic to Mount Washington Hotel, nestled in the White Mountains of New Hampshire. Far away from the battles still raging in Europe, he would attempt, and fail, in advancing a radical pragmatism at the most foundational event in our current geoeconomic order: the Bretton Woods Conference of July 1944.

It’s often forgotten how dysfunctional the world economy once was. By the time Keynes received his life-fellowship at Cambridge in 1909, all major economies pegged their currencies to gold. The gold standard functioned as a type of financial security ensuring that creditors could always convert currency to gold at a set rate.

However, as global financial flows began rapidly increasing in the early 20th century, Keynes argued that an asymmetric relationship between creditor and debtor nations was starting to emerge. If a country persistently ran trade deficits by importing more than it was exporting, foreign creditors would eventually want to ‘settle’ this inequality by converting the country’s currency to gold. This created a vicious cycle, where gold reserves would become depleted, further undermining confidence in their currency and eventually risking financial crisis.

Keynes first articulated this observation in 1919, warning of the implications of a global financial crisis where many central banks would churn through their gold reserves simultaneously. This would, in effect, create an enormous ‘run’ on central banks for gold – a physical commodity in limited supply.

During his attendance at the Paris Peace Conference that same year, Keynes argued against harsh reparation conditions for Germany based on this line of reasoning, maintaining that the gold standard would limit the extent to which Germany could pay back its debts. Though ignored in Versailles, Keynes’ predictions were proven correct: Germany quickly ran through its gold reserves and the Reichsmark suffered from severe hyperinflation. After the Dawes Plan began resuscitating Germany with American loans, Keynes warned further of interweaving precarious international economies together if gold was to continue being used as a monetary straitjacket. One financial shock would be enough to send the entire world economy spiralling into disarray.

The Great Depression exemplified everything Keynes was concerned about regarding the global economy: the scramble for gold, international markets shutting down, and the ensuing economic hardship resulting in political extremism. The economic precarity of the 1930s was one of several reasons why Europe faced yet another World War two decades after the first one ended.

Keynes’s criticisms eventually became mainstream during the war. The British treasury could not deny the prophetic yet premature nature of his warnings. However, having depleted its gold reserves in exchange for military supplies from the United States, Britain was facing the prospect of “a financial Dunkirk,” in Keynes’s own words. With the end of the war in sight in July 1944, there was consensus among the Allied powers that a reform of the global financial system was necessary for a stable post-war future.

When Keynes arrived at Bretton Woods, he quickly realised that Lord Halifax’s words of reassurance were misleading: the United States’ delegation saw the conference as a unique opportunity and thus behaved aggressively during the three week negotiating period. The Americans made it clear that designing the future of the global economy was occurring on home turf.

Historians agree that though Bretton Woods was attended by delegates from forty-four different countries, the atmosphere was dominated by the clash of two diverging personalities: John Maynard Keynes and Harry Dexter White. The leader of the American delegation, White, was an admired technocrat who had a sharp eye for detail and a knack for framing policy. Born to immigrant parents of Lithuanian-Jewish origin, there was nothing White looked down upon more than the snooty aristocracy of an English gentleman. During a particularly heated negotiating episode, he lashed out at Keynes: “We will try to produce something which your highness can understand.”

Keynes, astounded by White’s dismissal of him, retorted. “He has not the faintest conception of how to behave or how to observe the rules of civilized intercourse,” Keynes groused halfway through the conference.

Regardless of their accuracy in personal assessment, Keynes was certainly the more radical, ambitious, and pragmatic in his proposals. As usual, he maintained that solving the asymmetry between creditor and debtor nations was the most important factor in designing a sustainable future for the global financial system. To make his vision come true, he proposed creating an International Clearing Union (ICU) where a global reserve currency – the bancor – would be used to settle balance of payments deficits.

In practice, the bancor would work as a supranational currency issued by the International Monetary Fund (IMF) used exclusively for international trade and settlements. Nations running trade surpluses would accumulate bancors in their account at the ICU, while nations running deficits would see their bancor accounts debited.

Since bancors would be issued by the IMF, an organ of the United Nations, countries would agree through international law to have certain penalties supranationally imposed for occupying either extreme of the trade balance sheet: surplus nations would face charges for hoarding bancors, while deficit nations would face limits on borrowing them.

Keynes’s plans were designed for a fictitious post-war world: one that was rational, cooperative, and trusting. For the United States, a country on the cusp of becoming the most powerful nation in history, his idealism was unacceptable.

Instead, White maintained that the US dollar should be the anchor of the global financial system. By 1944, the United States was the largest holder of gold bullions in the world anyway. It only made sense, according to White, that the dollar should become backed by the world’s largest gold reserves, and all other currencies peg their own to the dollar-standard.

By the third and final week of the conference, it became clear that the moneybags were winning the negotiations. Keynes’s idea of a supranational currency had been abandoned and was being replaced by the US dollar – backed by gold held at Fort Knox. If countries were ever in doubt of the US economy’s stability, they could freely convert their dollars to gold at a set rate of 35 USD an ounce.

The conference’s end was marked by the notoriously rushed checkout at the Mount Washington Hotel. Keynes would later argue that White and his team intentionally left out conditions pertaining to the exclusivity of gold-convertibility in the signature papers. “All we were given was a dotted line,” he explained, “our only excuse is the knowledge that our hosts had made final arrangements to throw us out of the hotel, unhoused, disappointed, unaneled, within a few hours.”

Indeed, according to Keynes, the final document that would become the Bretton Woods standard was never seen by him. He doubtlessly would have fought against the designation of the US dollar as the “only gold-convertible currency” in the world. It went against everything the economist stood for. White, on the other hand, lavished in his execution of a foreign policy miracle. In fact, when pressed by his country’s congressmen who were more aligned with the multilateral idealism of Keynes, White responded with a badly feigned innocence:

“What is a ‘bancor’ or ‘unitas’? There is no such currency. It is because we had to have a name that we used the alternative ‘US dollar’. And I think that’s a pretty good name,” he said.

The two combative personalities of Bretton Woods both spent their final years marked by poignant decline. Keynes attended the occasional economics conference, but never mentioned the bancor publicly again. He died of heart attack in the English countryside in 1946, just two years after Bretton Woods ended. White would suffer the same cause of death two years later.

CAMP DAVID, MARYLAND, UNITED STATES OF AMERICA, 1971

On the 5th of August 1971, President Richard Nixon experienced one of the many crises that would mar his political career. A French naval ship had arrived on the shore of New York, sent by Prime Minister Georges Pompidou to redeem one gigantic final sum of gold from Fort Knox.

The Bretton Woods system of dollar supremacy far exceeded American expectations in the thirty years following the conference. In fact, the system worked too well. Senior officials at the Federal Reserve and Treasury in 1944 would have been shocked by the proliferation of dollars in global financial markets – and they would have been right to voice concern. Belgian-American economist Roger Triffin described the dilemma as follows: to maintain the dollar’s supremacy, the United States had to run trade deficits with global markets; yet, by running these deficits, confidence in the dollar would gradually become undermined.

Ironically, the Triffin dilemma had been a key concern of Keynes in 1944: if foreign central banks lost confidence in the American economy, there would be a global gold-run that the U.S Treasury could not account for. By 1959, due to the injection of money into Europe, the number of dollars in circulation had already exceeded American gold reserves. A decade later, the Vietnam War began exerting a significant inflationary pressure on the American economy. For the first time since Bretton Woods, scepticism was starting to mount concerning the dollar’s stability among its foreign holders in Europe.

Nixon knew that the number of gold bullions at Fort Knox – around 8,000 by 1971 – was not enough to sustain the Bretton Woods system any longer. However, he also knew that abandoning America’s role in dollar supremacy – and the geopolitical leverage it provided – was unacceptable amid the ongoing Cold War with the Soviet Union. One week after Pompidou’s destroyer anchored on the shore of New York, Nixon left to Camp David, the country retreat of the US President. Over the course of three days, he held several secret meetings with senior official at the Federal Reserve to determine the tenability of an American-led financial system.

On the 15th of August, Nixon shocked the financial world by announcing that the United States could no longer uphold the monetary system of Bretton Woods and severed the dollar’s link to gold. However, Nixon was far from relinquishing America’s financial dominance. In the years that followed, his administration engaged in a series of strategic sleights of hand to preserve dollar supremacy.

JEDDAH, SAUDI ARABIA, 1974

On Tuesday, the 9th of July 1974, the thirtieth anniversary of the Bretton Woods conference, an anxious Richard Nixon ushered his newly chosen Treasury Secretary, William Simon, into the Oval Office. The loose threads of Watergate were slowly unravelling, and he knew it was only a matter of time before he would be implicated in what was already a growing scandal. To soften the blow, the President needed a foreign policy miracle: stabilise the American-led international financial system once and for all.

Simon, a former Solomon Brothers bonds trader who once likened his own spirit to that of Genghis Khan, was still finding his footing in Washington. The ruthless temper that had worked so well behind the trading desks on Wall Street was met with sour responses from public officials. Perhaps, Nixon thought, Simon was better at embodying the brokering spirit abroad. He was instructed to be present at Andrews Air Force Base two days later to lead what was ‘officially’ a diplomacy tour of Europe and the Middle East. In reality, he was secretly tasked with convincing Saudi Arabia – the leader of Oil and Petroleum Exporting Countries (OPEC) – to recycle its petrodollars into the US economy through the Treasury.

While on route to Riyadh on Thursday morning, Simon reportedly watched an extremely violent in-flight film while periodically laughing out loud, drinking prodigious amounts of whiskey. Ministers of state are not supposed to roll off their planes drunk, but according to one official, this is exactly what Simon did – and in a country where alcohol is illegal.

Despite his drunken stupor, King Faisal took a liking to Simon – in no doubt amplified by his positive experience with the foreign policy mastermind, Henry Kissinger, one month prior. Kissinger, Nixon’s Secretary of State, had successfully convinced Saudi Arabia to drop OPEC’s oil embargo on the United States following its support of Israel in the 1973 Yom Kippur War. The embargo sent the price of oil soaring and paralysed the US economy, embittering the American public.

One week after having arrived, Simon and the Saudi royal family changed locations to the coastal resort town of Jeddah. A declassified government document made public in 2016 notes that it was here the bonds trader convinced King Faisal to reinvest Saudi Arabia’s petrodollars, awash due to the high price of oil, into US Treasury Bonds. In retrospect, the move was ingenious: by recycling petrodollars back into the Treasury, OPEC countries would in effect be lending money to the United States, upholding its ability to engage in deficit spending, and bolstering confidence in the dollar.

One month later, the ‘smoking gun’ of Watergate arrived in the form of a cassette tape, and Richard Nixon resigned. William Simon followed suit. Building upon Simon’s work, however, his successor eventually scored a landmark deal with Saudi Arabia in 1977, whereby King Faisal agreed to exclusively price oil in dollars. The rest of the OPEC nations fell in line, and the petrodollar was born. Nixon may have ended the gold standard, but he and his proteges had invented a new standard beyond Bretton Woods and free from the constraints of precious metals: black gold.

BASEL, SWITZERLAND, 2009

Every two months, the Bank of International Settlements (BIS) gathers the world’s largest central banks to discuss matters significant to international monetary policy. It’s an organisation that’s not only laughably easy to base conspiracy theories around, but which also serves as a useful lens for understanding the central banking zeitgeist.

In 2009, the Governor of the People’s Bank of China, Zhou Xiaochuan, flew from Beijing to the BIS headquarters in Basel, Switzerland, to deliver a speech at an emergency meeting concerning the implications of the global financial crisis. Drawing directly from Bretton Woods, Zhou stood up and began to speak: “The outbreak of our current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question: what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes of establishing the IMF?”

Zhou was concerned that the financial shockwaves reverberating around the world were being exacerbated by the dollar-dependency of the global financial system. After the fall of the Soviet Union in 1991, a rampant financialization of the global economy backed by the dollar’s stability had taken place. Both Wall Street and policymaking institutions of Washington promoted speculative capital flows, drove wedges between surplus and deficit economies, and advanced the systemic contagion that would coalesce in the closure of Lehman Brothers in 2008.

Zhou continued: “The desirable goal of reforming the monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations. Back in the 1940s, John Maynard Keynes had already proposed to introduce an international currency unit named the bancor. Unfortunately, the proposal was not accepted.”

Zhou’s echoing of Keynes’ idealism at Bretton Woods created a momentary stir – both in BIS and international media. Yet, within weeks, realising the difficulty in imagining a revised update of the bancor, supporters of Zhou’s message abandoned ship. In the years that followed, the US was able to ‘export’ much of this self-made economic crisis by virtue of dollar hegemony: it funded bailouts and stimulus measures with the world’s foreign reserves – largely held as U.S Treasury Bonds.

However, Zhou’s impetus was not ignored in his home country. Nor was it ignored in the Global South. Historically, concerns about dollar-supremacy had been raised by waning imperial powers, such as France and Britain. Dealing with an ascending imperial power, however, was something new for Washington. Five years later, Beijing would announce the Belt & Road Initiative: a massive decades-long ambition of stretching China-led infrastructure across the globe and international highway for liquid yuan.

THE DOLLAR’S DEMISE?

According to the US economist J. Bradford DeLong, on almost every point where Keynes was overruled by the Americans in Bretton Woods, he was later proven correct by events. As I am writing this in November 2024, the global share of US dollars in foreign reserves is at its lowest point in almost thirty years.

This has sparked much debate as to whether the dollar has already sounded its death knell: are we merely witnessing the faded echo of its decline?

Those who see de-dollarisation as something inevitable point to several recent developments. The first is the explicit and open use of the dollar as a geopolitical tool following Russia’s invasion of Ukraine in 2022. The US Treasury’s freezing of Moscow’s dollar assets following Russia’s invasion and the subsequent transatlantic pressure to get Russia blocked from SWIFT, an organisation facilitating communication between banks, has been a geopolitical ‘wake-up call’ for the Global South. It has marked the first time in history that Washington has openly and explicitly used its dollar-hegemony as a mechanism to punish its political adversaries, formally ending any semblance of neutrality in the global financial system.

As a result, China’s yuan is taking centre stage in de-dollarisation efforts (with the rupee, ruble, and rand trailing behind). For example, as of 2023, all of Russia’s exports to China are priced in yuan, rather than dollars. Nixon’s brainchild, the petrodollars of Saudi Arabia, are in competition from Beijing, too. In 2023, Mohammad Bin Salam announced (albeit symbolically) that for the first time, the Kingdom would allow oil to be priced in yuan. Given that Saudi Arabia is actively trying to diversify its economy from oil, this may seem like a less relevant indicator. However, Beijing’s investments in Saudi Arabia’s diversification projects, such as NEOM and The Line, are signs that China is positioning itself as a long-term economic partner, intertwining its influence with Saudi Arabia’s vision for a post-oil future.

Sceptics of de-dollarisation are very tired of hearing about all of this. Most consider it a topic that flares up once every five years when a geopolitical crisis strikes, never materialising in financial reality. The key argument sceptics levy is that the only thing that matters in determining whether a currency is suitable to be a foreign reserve is whether it’s freely convertible on foreign exchange markets and if the issuing country has a stable political-economic apparatus. To maintain control over the yuan, Beijing has decided to not let it be convertible, and much of the liberal-democratic world sees the PRC’s political authoritarianism as a bubble that will eventually burst.

Neither extreme, however, seems grounded in the history of international monetary policy. As we have seen, the global financial system of the 20th century was born in war, amended in crisis, and consolidated behind closed doors. It was negotiated by eccentric, hard-nosed personalities and sustained by the schematising whims of scandal ridden leaders. Perhaps one of the reasons why the idea of increased Chinese financial hegemony is so frequently discounted is that Beijing’s political apparatus is so divorced from the liberal democratic history of finance capitalism. From this view, scepticism towards the rise of the Yuan is often an expression of ideology, rather than impartial analysis.

China’s foreign policymaking, however, thrives amid geopolitical uncertainty. This might seem counterintuitive, given the long-term political decision-making Beijing engages in. But it is something reflected in the Chinese idea of weiji – which means both chaos and opportunity. Western liberal democracy is certainly in crisis, both internally and in its influence abroad; it has never been a more opportune moment for China to assert itself in the global financial system.

Regardless of whether the dollar will continue to be the standard of the future, it will continue being a standard – along with the euro, rupee, ruble, et cetera. As Parag Khanna, a leading futurist describes it: a global financial system characterised by fragmentation and entropy, split down geopolitical lines of multipolarity.

Unfortunately for Keynes, we not only seem to be drifting further from the prospect of a cooperative, rational, and trusting world – we are also losing our ability to envision it. As the speculative designer, Austin Houldsworth, featured in this issue points out, the future can sometimes be a distraction, what truly matters is an alternative. And in that respect, Keynes’s radical vision of a financial system not subject to the political power of industrial or financial capitalism is as uplifting as it is unlikely.

---