Several economic and societal trends, emerging in the 1970s, have challenged the Bretton Woods’ institutions and the global monetary architecture to the core.

Some of these trends are described below:

• Free market doctrine – The Chicago Business School inspired neoliberal doctrine, epitomized by von Hayek and Milton Friedman, introduced the singular profit maximization focus. The evolving economic system, backed by the Mont Pelerin society and articulated in a Powell strategy paper, thrived on extractive activities fully facilitated by unimpeded leverage and global pursuit of liberal economic policies. Ensuing financial support endowed abundantly the Heritage, Cato, Hudson, Hoover, Heartland, Federalist Society and American Enterprise foundations. These institutions offered further academic propping for “Nobel prize” economics. Starting with the breakup of the gold convertibility rule in 1971, the onset of the ardent deregulation drive led to several major market and banking crises culminating in the 2008 financial crisis. Current leverage stands at more than $280 trillion. 

• Dollarization – Today 80% of international flows are expressed in USD. The US has used its dominant military role to exert concurrent influence over commerce, financial markets, and geopolitical power. The USD hegemony allowed the US to run increasing trade deficits and weaponize its dollar system via sanctions on global adversaries or non-treaty compliant countries.  On other hand, developing countries have been running capital balance deficits in USD to tap global markets. This lead unintentionally to developing countries facing increasing debt burdens due to FX and interest rate dynamics linked to USD denominated debt. 

• Emergence of crypto-currencies and Blockchain – The 2008 financial crisis identified the Achilles’ heel of the financial system: bank counterparty risk. Faced with the opaque liquidity and solvency position of banks, Satoshi Nakamoto, designed Bitcoin, a virtual currency secured by cryptographic keys. The virtual coin is permanently stored on a decentralized distributed ledger (blockchain.) Coins could be used to seamlessly effect global payments without the intervention of any financial institution. Bitcoin was followed by a slew of other crypto-currencies, some of which (Ethereum) simplified the mining (validation) process and the ensuing GHG footprint. In a later stage Central Banks started to research the issuance of Central Bank Digital Currencies (CBDC), to both envision innovative monetary policies and to thwart the threat of fiat currency value erosion.

• Globalization – With the signing of the NAFTA agreement in 1992, as part of a wider historical arc, production capacity from developed countries was displaced to the developing world. This resulted in lower wage growth and economic stagnation in developed countries. The relocation process to the developing world, on the other hand, has prompted a substantial reduction of people living in abject poverty. Meanwhile, the industrialization of many production processes in the global south introduced the use of forever-chemicals (PFAS), pesticides and herbicides that impacted local environment, human health, and biodiversity. More recent trends, influenced by the Covid-19 pandemic and the drive to lower Greenhouse Gasses in the overall industrial production process, have fostered the onboarding of supply chains and the relocation of production sites within the concentric orbit of producers’ headquarters. 

• Health and quality of life paradox – Whilst globally life expectancy has increased in many countries, widening inequality, environmental pollution, and economic peer performance pressure have resulted in significant increases in stress-related illnesses, burn-outs, infertility, and a mental health epidemic. Rising rates of suicide, especially among the young, is only one of the more distressing statistics. 

• Polarization – At the time of Bretton Woods, the western block was represented by the U.S, and the eastern block was steered by Russia. Today, the world is faced with several power fault lines, with the dismantlement of the western block (Brexit and the emerging reluctant US leadership within NATO), tensions in the Middle East, Ukraine, and Taipei Strait, coordinated by covert action of China and Russia in concert, the aspiring world power dominance of China, a block of recalcitrant countries (Venezuela, North Korea, and Iran), and global terrorist organizations that are not officially recognized as state actors.  

• Persistent abstraction of a nature-centric design – During this time, the economic production cycles were financed by a capital allocation process, which was, until very recently, totally unconcerned with carbon footprint and environmental breakdown. The current unsustainable extraction and pollution practice is still enjoying a “free ride” as “externalities”, whether in bank-lending or investment allocations, are still totally excluded from the pricing equation.

The institutions born through Bretton Woods have failed to finance and steer for sustainable and inclusive growth. With formidable emerging climate risk financial disclosure guidance (Task Force on Climate Risk related Financial Disclosures (TCFD), SEC Climate Risk disclosure initiative, International Sustainable Standard Board consultation rounds,…) time might have come for those institutions to take heed to engage in similar efforts. The stated institutions remain largely agnostic about the ecological and social “externalities” of their respective restructuring efforts and project financing, including extractive activities, fossil fuel energy and hard to abate sectors. These activities entail immense carbon emissions, trigger extensive biodiversity loss, and are contributing to widening inequalities. For further reference see also these articles. More appropriate disclosure might render the entities more impact sensitive and accountable.

Emerging multi-headed crisis threatening the Bretton Woods architecture:

Over and above the impact of societal and economic trends, the Bretton Woods architecture, and by extension the markets and society, are now facing concurrently, a multi-headed crisis, consisting of climate change, global pandemic, biodiversity loss, social and racial injustice, geo-political tension, distrust in democratically elected institutions, and international trade and financial instability.  The 80-year-old international financial architecture is no longer adequate to contain and address the fault lines created by societal and financial trends, as well as the challenges of the current multi-headed crisis.