Bretton Woods took place in 1944, shortly after the successful Normandy invasion.
Sorry to nitpick, but the historical context was important in regard to many of the Agreements that were signed, and specifically to the use of the US Dollar as an international currency.
I have never really understood the concept of foreign-held US Dollars being an “interest free loan” to the USA.
I mean, how can USA citizens or the USA government spend or save or invest money that is not in their possession?
As far as I can see, the international dependence on the US Dollar dramatically reduces the transaction costs and currency risk involved in international trade.
However, as I stated in an earlier post, completely transparent, gold-backed, blockchain currencies will hopefully put an end to all this manipulation.
It only reduces risk and cost when we are responsible with it. When the value of it is looted by unrestrained Fed money supply creation for things like tarp, endless wars, and other crap, the risk and cost is high. If the dollar inflates, it’s stealing from those who hold dollars.
Your house didn’t double in value, the dollars are worth less.
Someone else can provide a better explanation but here is how I generally understand it:
As the Fed speeds up the printing presses, foreign central banks wishing to maintain stable exchange rates will intervene by buying and holding excess dollars sprewing off the printing presses. The key is that foreign central banks hold what they buy and thereby help prevent an outbreak of U.S. inflation.
“I have never really understood the concept of foreign-held US Dollars being an “interest free loan” to the USA.”
I’m not sure what a real economist would say but here’s my take and somebody can correct me. Let’s say Congress wants to spend 100 million dollars on Project X. It can raise the money by taxes or selling notes. Let’s say the politicians don’t want X scrutinized so they opt to sell bonds. Other countries use their currency to buy the bonds, which, incidentally total the original 100 million plus the interest, so, say, $110 million. That can be viewed as new money just going into circulation. That is an interest bearing loan with a built in inflation level of 10%.
Now let’s say, instead of buying bonds the foreign country already has cash in US dollars. It holds onto 100 million dollars which is not circulating in the US economy. Inflation is defined as too many dollars chasing too few goods. The overall economy has benefited more from a country holding onto cash than that same country buying our bonds.