The first major turning point for the international economy and financial and monetary reforms since World War II occurred in 1971.

Richard Nixon ended doubts and questions about the dollar-based monetary system, in which each ounce of gold was valued at 35 dollars and important countries valued their national currencies based on the dollar in a direct and steady manner. Nixon also eradicated the last remnants of the gold standard in relation to the dollar and announced the U.S. would float the dollar.
With this announcement, the Bretton Woods system, which was actually recognized as the standard for economic relations and the international monetary and financial system, was transformed and the world started a new day in its economic and trade ties with the U.S.
Even though its value decreased, the dollar has continued to be the most important reserve in the central banks of most countries over the past three decades (currently 65 percent of the world’s central banks’ reserves are in dollars), and its value remained high, despite the widening U.S. trade deficit.
However, the current fluctuations in international foreign exchange markets herald new developments. As in the 1960s, when U.S. officials evaded the dollar’s responsibilities under a pressing demand for gold in international markets and actually transformed the Bretton Woods system, the sliding value of the dollar in recent months has once again put the status of the dollar as a credible international currency in serious doubt and has given rise to serious questions.
What kind of system has guarded the United States’ important role in international economic relations and guaranteed its interests after the transformation of the Bretton Woods system? What is the outlook for the international monetary system and where will the dollar stand in the future? Can one speak of the end of the new system with these new changes?
To provide answers to the above questions, one must start to analyze the economic and trade developments over the past four decades. Throughout all these years, the U.S. budget and trade deficits have continued, for the most part, but developing countries in Asia and Latin America have experienced a rise in their exports, generating high economic growth. The trade surpluses and high economic growth of these countries, especially certain East Asian states, have brought foreign reserves, which these countries decided to spend buying U.S. bonds.
Therefore, the newly industrialized countries, backed by the U.S., have had the opportunity to maintain low exchange rates for their currencies in order to increase their exports and in return use the surplus funds to buy U.S. government bonds, filling the coffers of the U.S. Federal Reserve, which has given the U.S. the opportunity to avoid inflationary pressure resulting from its continuing budget deficits and to increase its influence in the world.
A glance at this effect shows that after 1971 the following conditions have made the “new Bretton Woods” system work in favor of U.S. interests because of:
(A) The continued U.S. investment in other countries and the net revenues gained from such investments;
(B) The maintenance of proper exchange rates between the dollar and the national currencies of export-driven developing countries;
(C) These countries’ increased dependence on the U.S. market for trade; and
(D) The continued inflow of surplus funds from foreign countries’ purchases of U.S. bonds.
In such an environment, the economic and trade interests of many countries in East Asia have become dependent on their maintenance of international economic relations, especially with the U.S, which in the final analysis delivers positive results for the U.S.
In recent years, the following developments show that this reality is changing:
(1) The performance of the current mechanism has become transparent and is posing serious challenges to the U.S.
(2) After 2005, many Asian countries stopped using their export revenues to buy U.S. bonds and began purchasing stocks in private companies of the United States.
(3) Central banks around the world began diversifying their reserves to improve financial security.
(4) New production networks and growing economies are causing a structural change in the international economy. These changes have the potential to gradually affect and shape foreign exchange policies.
(5) Despite the low value of Asian currencies and their limited share in the world’s foreign reserves, the closer economic cooperation between certain Asian states has created the possibility of more effective foreign exchange relations between these countries.
(6) For the first time, net U.S. revenues from foreign investment have taken a serious downturn, and the real effects of trade and budget deficits are expected to clearly manifest themselves in the United States in the near future.
All these changes show that all countries -- even those that are close economic partners of the U.S. -- believe the world needs a new financial system. Thus, in the current transitional stage, the pressure on the dollar, which is still over–valued, will increase and will herald the end of the new Bretton Woods system.
Now all eyes are focused on China to determine what the future will bring. To the extent that this country can pass this transitional stage, while maintaining its rate of technological advancement and gaining more influence over foreign exchange and financial issues, its role will become more influential in shaping the course of developments in the world’s foreign exchange and financial systems.
At this stage, Washington is worried, and these concerns can expedite changes in the financial and monetary system and inflict damage on the dollar in international economic relations