Paul Volcker Proposes A New Bretton Woods System To Prevent "Frequent, Destructive" Financial Crises

Tyler Durden's picture

One of the conventional justifications by tenured economists for a fiat currency regime, especially as a replacement for a gold, or other hard currency, standard, is that the financial system has been far more stable under a non-gold standard regime.

While we have frequently shown that this assessment is flawed, the interpretation of the data is always a matter of opinion, and usually breaks down based on ideological conviction: be it Keynesian or Austrian. However, one person whose view carries significant weight among the Keynesian school of thought is none other than former Fed chairman Paul Volcker. Which is why we found it surprising that it was Volcker himself who, on May 21 at the annual meeting of the Bretton Woods Committee, said that "by now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth." We can, indeed, agree.

However, we certainly disagree with Volcker's proposal for a solution to this far more brittle monetary system: a new Bretton Woods.

Because if there is one place where our view radically diverges with that of the Chairman emeritus of the Group of 30 and not to mention former Fed chairman, it is in the arena of institutional oversight of finance and economics: whereas he and his ilk want more deference to an "official, rules-based managed monetary system", we believe that this merely sows the seeds of yet another system's own destruction as it hindres efficient markets, fair price discovery and by definition results in a manipulated market whose purpose is to serve a given policy objective du jour, and in doing so pushes it ever further from an equilibrium point and raises the likelihood of even greater, and more violent crashes.

However, since it is the fate of the current centrally-planned regime to become even more centralized following its next inevitable crash, we can only sit back and muse at Volcker's tongue-in-cheek prediction of what will almost certainly come next.

His full speech is presented below:



Weeks ago, Dick Debs overcame my reluctance to participate in still another public meeting. And once that commitment was made, the inevitable question followed: ”Paul, we need a title for your remarks”.

Well, what could I say that could be new or provocative amid all the conversations about the markets, financial reforms in all their variety, or even the Volcker Rule itself?

Well, given the sponsorship of this meeting, what popped out of my mouth was, “What About a New Bretton Woods???” – with three question marks.

The two words, “Bretton Woods”, still seem to invoke a certain nostalgia – memories of a more orderly, rule-based world of financial stability, and close cooperation among nations. Following the two disasters of the Great Depression and World War II that at least was the hope for the new International Monetary Fund, and the related World Bank, the GATT and the OECD.

No one here was actually present at Bretton Woods, but that was the world that I entered as a junior official in the U.S. Treasury more than 50 years ago. Intellectually and operationally, the Bretton Woods ideals absolutely dominated Treasury thinking and policies. The recovery of trade, the opening of financial markets, and the lifting of controls on current accounts led in the 1950’s and 60’s to sustained growth and stability.

Even then there were recurrent stresses and strains, but the sense of a strong commitment to the new system prevailed: the potential resources of the IMF were enlarged, a network of swap agreements was created, and there was even some Treasury borrowing in foreign currencies! Today’s “quantitative easing” had a smaller-scale precedent in the early 1960’s. “Operation Twist”, was designed to keep long-term interest rates low as short-term rates were raised, at least in part to protect the dollar. Even more striking was the introduction of a variety of controls by the United States on the export of capital.

With prices stable in the United States, which still had a sizable current account surplus, the use of the dollar convertible into gold at the center of the system was seldom questioned.

Those essential conditions had changed by the time I returned to the Treasury in 1969, right on the front line in the conduct of monetary affairs. The ill-conceived Vietnam conflict and its fiscal and political consequences shook the financial ground. An insidious intellectual shift was also becoming important. Robert Triffen had persuasively pointed out the ultimate dilemma in building a monetary system and the provision of international liquidity on the base of a single national currency. The invention of the Special Drawing Rights was a response to that critique, but the limited provision of SDR’s and sense of commitment was not enough to suppress the spreading concerns.

More broadly, the rationale of a regime of “fixed but adjustable” exchanges rates came into question. Later, those doubts were reinforced by a larger intellectual framework. The mantra of “efficient markets” and “rational expectations” seemed to suggest a stable and effective framework for a financial system, domestic or international, would not be dependent on – indeed should be independent of – official rules and structure.

Whatever the intellectual shift, by the early 1970’s it became increasingly apparent that there needed to be a realignment – to my mind a substantial realignment – of the exchange rate relationship between the U.S. dollar and other leading currencies, most importantly at that point the Japanese yen. The suspension of gold convertibility of the dollar as a transitional means of inducing the realignment, however controversial at the time, became inevitable.

Efforts to reconstruct the Bretton Woods system, either partially at the Smithsonian or more completely in the subsequent negotiations of the Committee of 20, ultimately failed. The practical consequence, and to many the ideological victory, was a regime of floating exchange rates. Somehow, the intellectual and convenient political argument went, differences among national financial and economic policies, shifts in competitiveness and in inflation rates, all could be and would be smoothly accommodated by orderly movements in exchange rates.

The need to subject national policies to external influence could be greatly reduced and national economic sovereignty maintained.

Any need for controls, for official intervention in currency markets, even for stockpiles of national reserves would be greatly reduced, and even eliminated. In fact, the “system” (or as many would label it “non-system”) could proceed effectively even without enforcing a common approach to floating. De facto, a hybrid system – a lot of floating, some fixing, some “do as you please” - developed with little role for the IMF itself in managing the “system”. In fact, the occasional efforts to achieve cooperation in managing exchange rates – strikingly in the well-publicized agreements at the Plaza and the Louvre in the 1980’s - were in response to national initiatives, with the IMF essentially a by-stander.

By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth.

The United States, in particular, had in the 1970’s an unhappy decade of inflation ending in stagflation. The major Latin American debt crisis followed in the 1980’s. There was a serious banking crisis late in that decade, followed by a new Mexican crisis, and then the really big and damaging Asian crisis. Less than a decade later, it was capped by the financial crisis of the 2007-2009 period and the great Recession. Not a pretty picture. At the least, we have been reminded that while free and open capital markets may be needed to support vigorous growth, they are also prone to crisis. The more complex, interrelated and free from official restraints, the greater the collective risk.

For years, the benefits were reflected in the enormous growth and the reduction in poverty of emerging economies. The contrasting concerns are reflected in the slowing of growth and productivity in the industrialized world.

We can all recite a rather long list of culprits contributing to the financial crisis: excessive leverage, outlandish compensation, failures in regulatory oversight, simple greed, and on and on. What I want to raise is what seems to be a neglected question. Amid all the market and institutional excesses, all the regulatory omissions, most of all, the legitimate questions about the underlying failures of national economic policies, has the absence of a well-functioning international monetary system been an enabling (or instigating) condition? Specifically, did the absence of international oversight, of discipline in financing, of exchange rate management permit – even encourage – unsustainable imbalances in international payments and in domestic economies to persist too long?

Many have pointed, for instance, to the huge imbalances at the beginning of this century in international payments between the United States on one side and China and Japan on the other – the largest economies in the world. Those imbalances were easily financed. The result was that a high degree of liquidity at low interest rates could be maintained in the United States, despite the virtual disappearance of domestic savings. The sub-prime mortgage phenomenon was an outgrowth. At the same time, exceptionally high levels of savings and investment in China supported exports without working toward a more balanced economy, including the domestic consumption that would be necessary to sustain Chinese growth in the years ahead.

Where was an effective adjustment mechanism? Was the “exorbitant privilege” of the dollar as a reserve currency also a “dangerous temptation” to procrastinate - an impediment to timely policy adjustments, risking eventual breakdown?

The current travails of the Eurozone (the equivalent of an absolute fixed exchange rate regime) carry interesting lessons. A single currency with the free flows of funds among the member states simply could not substitute for the absence of a unified banking system and incentives for disciplined and complementary national economic policies.

That is all a long introduction to a plea – a plea for attention to the need for developing an international monetary and financial system worthy of our time.

Implicitly, bits and pieces of needed reform are being recognized by strong efforts to standardize commercial bank capital requirements and, for the first time, to introduce liquidity standards. The need for official oversight and surveillance beyond the commercial banking system is well recognized, even if much remains to be done to develop and standardize practices. There is effort underway to achieve a common approach toward the resolution of failing financial institutions of systemic importance; it is hard to perceive of any successful resolution process that proceeds only nationally.

In the midst of crisis, in 2008 and 2009, an intellectual consensus was reached within the G-20 about the need for forceful fiscal and monetary policies. More or less coordinated official intervention in markets took place on an enormous scale. Cooperation among central banks helped deal with pressures on exchange markets. The provision of ample liquidity by the key national central bankers is still taking place as we meet. But those measures don’t really count as structural reforms.

Now, new questions have been raised about the sensitivity of markets in small and emerging economies to even small policy adjustments by the Federal Reserve. While the concerns and complaints of some officials in those countries at the time may seem exaggerated, the volatility of short-term capital flows does raise important issues. And, there can be no doubt that major changes in circumstances and policies in industrialized countries do inevitably have world-wide repercussions.

Well, even if you agree with my concerns, you will reasonably ask where the analysis leads. What is the approach (or presumably combination of approaches) that can better reconcile reasonably free and open markets with independent national policies, maintaining in the process the stability in markets and economies that is in the common interest?

That is a question I cannot answer today with a sense of conviction and practicality. What I do know is that governments do not have before them the necessary analysis and well-conceived approaches that could command attention and support.

The creation of the G-20 at the exalted level of Presidents and Prime Ministers has been a political accomplishment. The agreed changes in IMF governing structure are important in achieving a sense of political legitimacy for its governing structure and decision-making. But that is not enough – it means little without substantive agreement on the need for monetary reform and practical approaches toward that end.

We are a long way from that. But what can be done now is to lay the intellectual ground work for approaches that can, for instance, identify and limit prolonged and ultimately unsustainable imbalances in national payments. We should be able, within a broad range, to manage exchange rates among major currencies in a manner that discourages the extreme changes that are inconsistent with orderly adjustment. We can and should consider ways and means of encouraging – even insisting upon – needed balance of payments equilibrium.

Nor would I reject some re-assessment of the use of a single national currency as the dominant international reserve and trading vehicle. For instance, do we want to encourage or discourage so important a development as regional trade and currency areas?

A new Bretton Woods conference? We are long ways from that. But surely events have raised, whether we want to admit it or not, some fundamental questions that have been ignored for decades.

We may have escaped a repeat of the Great Depression of the 1930’s. Happily, despite all the political turmoil in parts of the world, we have also escaped, narrowly escaped, a financial collapse destructive of major economies and needed cooperation. But obviously, that is not enough.

All that has happened reinforces what we typically affirm: a strong, innovative and stable financial system is fundamental to open trade and to the prosperity of all nations. Participation in such a beneficial system that has become truly international implies certain responsibilities.

Walter Bagehot long ago set out succinctly a lesson from experience: “Money will not manage itself”. He then spoke from the platform of the Economist to the Bank of England. Today it is our mutual interdependence that requires a degree of cooperation and coordination that too often has been lacking on an international scale.

Can we not, in approaching that challenge, restore something of the spirit and conviction that characterized the planning, the negotiation and the management of the Bretton Woods System that I once knew 50 years ago? Our host today, the Bretton Woods Committee lights the candle, but we have a long way to go.

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Cattender's picture

NOOOOO!!!!! Just PRINT More Money out of thin air... it's Working!

Pinto Currency's picture


So the central planners including David Rockefeller's special assistant Paul Volcker promoted removing gold as money from the global economy 45 years ago and they got what they wanted.

Now things are crashing and he says the central planners need to get togetther to make a better plan - this time it will work!

Perhaps get out of the way and let the market choose gold and silver as money as it has for 3,000 years without the help of these egghead central planners.

It's happening now already.

And as for that quote from the economist at the BofE “Money will not manage itself”.  Oh yes it will.  It does not need central bankers to blow bubbles and bail out banks.  It just won't be as much fun for these looters in tall towers.

max2205's picture

Great....a new plan to screw us over for the next 100 years.....shut it down!

tmosley's picture

So this is the setup for Jim Willie's dollar partition, I guess.  One foreign facing Republic Dollar that is redeemable in gold, one domestic facing dollar that ain't redeemable for shit.  For the partition to be complete, look for strict currency controls to come into play.

MeMadMax's picture

It's regulation and the moronic keynesian way of thought, that got us into this sinking boat in the first place....

economics9698's picture

It seems to be really hard for these egotistical ethnocentric assholes to admit they don’t do shit but finance wars and feed the rich.

taraxias's picture

Fuck you Paul Volcker, you fiat lover banker scum, honest money gold hating piece of shit. 

OpenThePodBayDoorHAL's picture

In the photo, the smoke kinda looks like a beard and makes him look like Karl Marx

Tabarnaque's picture

These guys are so full of shit that nobody takes them seriously anymore. His proposal echos the desperate proposal of England shortly before they lost the World Reserve Currency status at the end of WWII. Funny how history comes into full circle sometimes.


shovelhead's picture


Au contraire,

The color of the wallet they steal from matters not a whit.

rubiconsolutions's picture

Novel concept: How about if we just get rid of "systems" which control what money is and how it's brought into existence?

AlaricBalth's picture

The actual name of the conference held in Bretton Woods, New Hampshire was the United Nations Monetary and Financial Conference. The origin of economic globalization had its genesis at Bretton Woods, led by JM Keynes. The formation of the IMF was also a result of this conference.

bunnyswanson's picture


Karen Hudes (World Bank Whistle Blower):

" The Bretton Woods institutions were taken over by the Banking Cartel.  Do you blame a bus that was hijacked or the hijackers?  We are now using the Bretton Woods institutional framework to take down the Banking Cartel.  Here is what the Bretton Woods are now up to, taking back the world's gold for the world: ?" (comment made on thread of video clip with Greg Hunter). 

Pinto Currency's picture


The lesson is: do not centralize power.

Not only can it not be administered properly, it will invariably be corrupted and taken over by the money power acting against the society.

alexcojones's picture

I've heard about this thing called "Gold."

Endangered species, right? Keeps itself hidden away? Few people have ever seen it, right?

AC not PC

BrosephStiglitz's picture

The kind of rhetoric in the article that Volcker suggests actually annoys me a great deal more than QE, or any of the other retarded nonsense that I see going on in the world.  Mainly because of the sheer hypocrisy.

The reason Bretton-Woods failed in the first place was because the US couldn't stick to its own rules.  Now they want to reinstitute it?  Hm.  Wonder how that will go?

Fuck off Volcker.

Cacete de Ouro's picture

The Bretton Woods Committee and the Group of Thirty are both Rockefeller front organisations. Volcker is a David Rockefeller agent, as one commentator says above.

The Bretton Woods Committee and The Group of Thirty both operate from the same office in Washington DC, the same exact suite.

Suite 200 1726 M Street and both organisations SHARE THE SAME EXACT FAX NUMBER

The Bretton Woods Committee
1726 M Street, NW, Suite 200
Washington, DC 20036
Telephone: (202) 331-1616
Fax: (202) 785-9423

The Group of Thirty | 1726 M Street NW, Suite 200, Washington, DC 20036 USA | Phone : 202-331-2472 | Fax: 202-785-9423 | E-mail:

Geoffery Bell ex Schroders started the Group of Thirty after David Rockefeller told him to start it. Everybody knows this.

Open your Eyes sheeple!

COSMOS's picture

I see him smoking and I heard that he rolled the tobacco in crisp 1000 dollar bills and smoked them.  That is life when you can print you salary and money for all your expense accounts.  The pension and health care I am sure are exceptional.

dexter_morgan's picture

tobacco? from the sounds of his idea maybe it was wacky tabaky

NickVegas's picture

For some reason, they quit printing large bills. Electronic ledger for easy printing at a keystroke. How much time they will save printing will only add to our overall wealth as a debt slave society.

chrissjg's picture

I don't think he would smoke out of dollar bills... Thats gotta be horrible for your throat/lungs..

LetThemEatRand's picture

Volcker knew that the system was going to implode, and as an insider of that system, he saved it from destruction by raising interest rates.  So he's smarter than The Bernanke and his dog Yellen.  But he's still a central bank douche.

7.62x54r's picture

Ermmmm ... a Cocker Spaniel is smarter than those two.

Tasty Sandwich's picture

That was a different world.

Raising rates would destroy the system now.

LetThemEatRand's picture

Agreed.  And the system is going to implode anyway.  But now they are positioned to deal with us Walking Dead when the shit hits the fan (homeland security, NSA, militarized police, etc).

Tasty Sandwich's picture

Yeah, the system is doomed no matter what.

I suppose your scenario is possible, and they have made preparations.

However, I lean more toward the view that the local, state, and federal governments will be paralyzed and simply cease to function.  Once the police realize their pensions are gone, they will have little incentive to follow orders.

Caviar Emptor's picture

There are always private armies in every age. Without pensions the incentive becomes what you can take from the citizens

nmewn's picture

Yep, here it comes:

"Specifically, did the absence of international oversight, of discipline in financing, of exchange rate management permit – even encourage – unsustainable imbalances in international payments and in domestic economies to persist too long?"

We need a one world fiat currency to properly manage you sheeples labor & economies. Trust us, we'll get it right this time.

Yeah, fuck you.

kill switch's picture

I agree FUCK YOU!!!!!!!!!!!!!!!!!!!!!

New_Meat's picture

Bretton Woods is now run by Omni Hotels.

Paul, there is no fucking way that any "New Bretton Woods" will work out.

don't cha' know.

- Ned

dexter_morgan's picture

Central Planning. Utopias. Lot of hot air for just a 'new' idea of how to steal any remaining wealth the upper .01% doesn't already have. Same old same old central planning crap.

wrong. we likely will get fooled again.Meet the new boss - same as the old boss.

Winston Churchill's picture


Shame Putin and Xi doublecrossed you.I'm sure that is the real topic under

discussion in Copenhagen.

Moral of the story; never trust a fellow psychopath.

Caviar Emptor's picture

Yes. East vs West currency blocks. Timing of the speech was jus as China and Russia agree to trade without dollars

nevadan's picture

Hey Paul, I have an idea.  How about a system where banks who abuse leverage are eviserated and their parts sold to the highest bidder, and bankers who participate in fraudulent activities go to prison? 

Chupacabra-322's picture

Now there's a Novel idea. However, its a Criminal system, owned by Criminals & run by Criminals.

Atomizer's picture

Volcker, shakes my head in disbelief. What were you smoking when you were writing financial policies?


You're a fucking idiot who contributed to this monetary planning mess.

Reaper's picture

Which government appointed masterminds will make the new central plan for the world? The ones we have now or a new batch?

Atomizer's picture

The ones that i mention quite often. This is not going to end well. They do want a new holocaust to offset obligations. Sick fucking people running the establishment.

Latitude25's picture

This whole meltdown is rapidly moving beyond the control of Western Central planners.  Without Russia, China Brazil, India etc. what control do these wankers actually have?

analyzer_66's picture

uh lets see, they control the military, they control interest rates, they have congress in their back pockets so anytime they need to write a new law to benfit themselves or eliminate one (Glass-Steagall) they can.  They also control the printing presses, the stock, bond and commodity markets, the derrivative markets, the elections, and add onto that, they control the NSA which monitors and records all your phone calls and emails.  They also control something called freedom, in a place formerly known as The Free World, which now, more closely resembles "Oceania" from George Orwell's book 1984.

johny2's picture

the plans of tbe man and the mice...


the actions of each of us are noted, and surelly it all balances out somehow and sometime. enjoy your luxuries, Paul Valcker, you may later find out you sold your soul cheaply.

pauhana's picture

The Creature from Bretton Woods?

Joebloinvestor's picture

He must be French.

There, the solution for a failing socialist state was to elect a bigger socialist.

10mm's picture

What ever its  gonna be, it will fuck you and me. 

Quinvarius's picture

He used the term "Bretton Woods" for as reason.  Anyone who has looked at the situation knows fiat currency plus modern banking means the end of civilization.

ForWhomTheTollBuilds's picture

I have now finished reading the article, but earlier saw only the headline on my phone and had to entertain myself with that.


My initial thought from the headline only was that this guy sees the writing on the wall wrt the BRICS nations and is trying to get the current leaders to understand that if the west wants a say in the next system, the time to come up with a coherent plan is now since there are others working on alternatives.


But yeah, your read is good too.  Im not sure what Im looking forward to more, hearing about the role Gold plays in the new system or hearing that everyone in he financial press and acedemia always knew it would come to that because a single fiat currency serving as the basis for world trade settlement is ridiculous.


For my part I think Rickards has probably got the best mix of idealism plus dispassionate analyst leanings.  Fiat money will live on, but those who hold their wealth in the form of central bank liabilities and govt bonds will pay dealy for their blind faith when the system is next "tweaked".  Maybe for them, the financial cost is worth the peace of mind they get from believing someone is out there taking care of them?

ForWhomTheTollBuilds's picture

Further to your idea, he draws special attention to the the delinking of gold being a "suspension" rather than something like "removal" and also covers failed attempts to undo the suspension and histories view that this is some great victory.


This all makes me wonder if we arent really close to the day things finally become non-functional.