Mahathir calls for return to Bretton Woods system of currency exchange rates

Former Malaysian Prime Minister Mahathir Mohamad, who fought off an attack on the ringgit with capital controls during the Asian financial crisis, said currency trading is “silly” and the world should return to the Bretton Woods System of fixed exchange rates. 

Currency wars are futile and the U.S. Federal Reserve’s latest quantitative easing plan will result in hot money pushing up prices in small countries, the 85-year-old said in an interview in Kuala Lumpur today. The Fed on Nov. 3 said it intends to buy an additional $600 billion of Treasuries to foster growth. 

“When you lose money, you must accept that you have lost money,” he said. “When you lose money and then you go back to your house and print more money for yourself, that makes things quite ridiculous. This is money that is not real, yet this money can destabilize by, for example, going into small countries to invest in stock exchanges.” 

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.

Under the Bretton Woods system, central banks of countries other than the United States were given the task of maintaining fixed exchange rates between their currencies and the dollar. They did this by intervening in foreign exchange markets. If a country's currency was too high relative to the dollar, its central bank would sell its currency in exchange for dollars, driving down the value of its currency. Conversely, if the value of a country's money was too low, the country would buy its own currency, thereby driving up the price.