policy - The Black Vault

THE BDM CORPORATION
1968 level; and gold payments from central banks to the free market were
suspended. In a second reform, the IMF introduced "paper gold" in the form
of Special Drawing Rights (SDRs), a new reserve asset created by international
fiat. Since the IMF could increase the supply of SDRs at any
time, they provided a mechanism for solving the liquidity problems created
by freezing the stoc": of "official" gzld at its 1968 level. (An explanatory
note:
Since the international economy and the volume of international
monetary tr%.nsactions grow over time, it is also necessary for the reserves
backing these transactions -- be they gold, dollars, or SDRs -- to increase
in quantity. Otherwise, international trade would be inhibited in the same
way that domestic transactions would if there were not enough money to pay
for the items people sought to buy or sell. 31/) These reforms were
recognized as being temporary, and indeed the 197us did bring further
changes in the system, but they worked well as a stopgap arrangement.
The international monetary crisis of 1968 had thus been
weathered, but it was clear that the United States, after over 20 years of
reigning supreme in international monetary affairs, would thenceforward
have to settle for a first-amongst-tquals position. As was mentioned
before, this dramatic shift in the US's international status was largely
inevitable since the lopsided system created in the wake of World War I!
had to be replaced, sooner o;. later, by a more balanced international
economic order. But this shift was also a result of specific American
policias, probably the most importan t of which was the decision to escalate
the Vietnam War. Reviewing the probl'-ms underlying the US's diminishing
international economic position in the late 1960s and the 1970s, Godfrey
Hodgson therefore wrote that: "All these troubles--buoyant imports,
1
lagging exports, sluggish investment leading to mediocre productivity--
could be traced to one great cause: inflation. And inflation was caused
by the Vietnam War." 32/
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