Introduction
PRINCETON – According to US President Donald Trump and his advisors, the international monetary system is broken and harmful to Americans. Radical reform is needed, possibly only achievable through a highly disruptive global reorganization.
A Precedent: The Bretton Woods Conference of 1944
We have been here before. In 1944, the United States hosted the Bretton Woods Conference, attended by 44 nations, which set the course for exiting the dysfunctional post-war order. Now, US Secretary of the Treasury Scott Bessent frequently invokes the image of a new “Bretton Woods moment” to address three interconnected and overlapping issues typically handled by separate international agencies and institutions.
The Three Issues
- Trade: How to stop the loss of US jobs and livelihoods.
- Money: The overvaluation of the dollar in the global system makes US exports too expensive.
- Security: The United States assumes responsibility for defending other countries.
The Trump administration’s presumptuous idea is to use US trade and security policies to compel others to orchestrate a dollar devaluation without undermining its reserve status.
Historical Precedents
The idea of a “Mar-a-Lago Agreement” draws direct inspiration from previous instances when the United States took measures to reshape the international monetary system and devalue the dollar. The most obvious reference is the Smithsonian Agreement of December 1971, which President Richard Nixon declared “the most significant monetary agreement in world history.” Another precedent is the Plaza Agreement of September 1985, under President Ronald Reagan, which may have inspired the Trump administration’s initiative.
In both cases, a US president believed the dollar was overvalued, that US exporters and workers were at a disadvantage, and that US economic policy had been blocked by foreign obstruction. This feeling of being trapped created an impulse for radical disruption.
The Outcomes of Past Agreements
Neither the Smithsonian Agreement nor the Plaza Agreement lasted long. The Smithsonian parities fell apart, mainly because the United States continued with strong fiscal expansion that absorbed more imports. Later, when Europeans (and then the rest of the world) abandoned fixed exchange rates in 1973, the dollar had to depreciate significantly more.
Similarly, the Plaza Agreement was quickly replaced by the 1987 Louvre Accord, aiming to stabilize exchange rates. However, disputes over how to achieve this goal triggered a major international stock market panic in October of that year.
A Bleak Future for a Modern Agreement
This history foretells a poor future for a modern agreement. Worse, Trump and many around him seem to genuinely believe that tariffs will increase the revenue needed for tax cuts they desire. According to this logic, tariffs cannot merely be a negotiating tool; they would have to become a permanent reality.
The Origin of the Debate
The entire debate on the Mar-a-Lago Agreement stems from an influential—and now notorious—article by Stephen Miran, published in November 2024, “User’s Manual for Restructuring the Global Trade System,” which likely earned him the presidency of the White House Council of Economic Advisors.
After warning about the disruptions long-term rising interest rates could cause in the real estate market and federal budget, Miran proposed his grand solution: The United States should use its security guarantees as leverage over countries holding dollar-denominated assets. This approach also has historical precedents.
During the interwar period, the United States made it clear to West Germany that its defense against Soviet threats depended on adapting to US monetary objectives. The same logic was applied when Britain and France, the 19th-century financial giants with significant gold reserves, encouraged peripheral countries, especially those in Central and Eastern Europe, to hold most of their reserves in short-term deposits and British or French Treasury bills in exchange for security guarantees.
However, by the 1930s, these smaller states knew this arrangement wasn’t working and insisted on holding only gold. Today, not only China, Russia, and Turkey are increasing their gold reserves; so are those European states that were so vulnerable during the interwar period: the Czech Republic, Hungary, and Poland.
The Risks of a Mar-a-Lago Agreement
The Inherent Risk: Using US trade and security guarantees as a weapon to weaken the dollar could destroy confidence in the US currency.
An effort supposedly to protect US workers would become excessive, requiring another international monetary agreement. However, the United States lacks the credibility to deliver it.
We already know that the Smithsonian and Plaza Agreements provided little long-term relief for US workers. Attempting to replicate them would be ineffective and possibly entirely destructive.
The Author
Harold James, Professor of History and International Affairs at Princeton University, is the author, most recently, of Seven Accidents: The Crises That Shaped Globalization (Yale University Press, 2023).
Copyright: Project Syndicate, 1995 – 2025
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