The History of Private Placement Programs
The genesis of this marketplace was the 1945 Bretton Woods Conference of world leaders. The principles originally championed as answers to post World War II economic stability are still the impetus for the operation of these transactions today.
A short historical summary will help to understand the origin of these transactions and the reasons why the Treasury backed, private bank instrument marketplace has remained strong and viable notwithstanding the great social, political and economic changes the world has experienced during the last half century.
With World War II having come to a close, the leading political and economic authorities of the world met in Bretton Woods, New Hampshire. Their purpose was to formulate a common plan to rebuild the war’s massive devastation and to impose global restraints upon forces which had twice led to world chaos during the first half of the Twentieth Century and left economic collapse in its wake.
To accomplish this goal, these leaders sought to empower universally recognized international institutions capable of effectuating and preserving political order and capable of encouraging and facilitating world economic trade and cooperation.
The World’s leading economists advocated the establishment of an international banking system which administered a universally accepted “currency”. It was believed that a centralized world authority, and a standard world currency, with fixed exchange rates among the various currencies of the world was the formula for the stimulation of universal economic growth and the maintenance of economic balance and stability though the economies of the world.
John Maynard Keyes urged the adoption of a standard currency. The political realities of Nation State’s autonomy, however, inevitably precluded the adoption of a uniform currency. As an alternative, the International Leaders resolved to adopt the United States Dollar as the standard world currency for international trade. It was gold backed and the most stable currency. This adoption of the United States Dollar as the world’s standard currency for international trade was the milestone which triggered the development of the bank instrument marketplace.
The Bretton Woods Conference gave birth to the United Nations,
the World Bank, the International Monetary Fund (IMF) and the
Bank of International Settlements (BIS).
Most of the world’s economies experienced great post World War II expansion. With this expansion came increased international trade and the need for more and more United States Dollars to accommodate this growth.
In permitting the U.S. Dollar to be adopted as the world’s standard currency, the role of the United States Treasury and the United States Federal Reserve expanded.
To protect the dollar’s value while increasing the dollar’s availability, the U. S. Treasury commenced to work with the World Bank, the IMF, and the BIS through the Federal Reserve, and the largest Western European Banks. They developed a system of issuing uniform financial bank instruments in U. S. Dollar denominations in accordance with the new and universally accepted financial standards.
In doing so, these U.S. Agencies and International Institutions merely incorporated the existing basic operating procedures of the major Western European Banks. The United States banks manage their asset liability by offsetting short term deposits against long term loans while Western European banks fund their customers’ long term borrowing needs through the issuance of various bank financial instruments including Medium Term Notes and Letters of Credit.
By the sale of Bank Instruments, the IMF is able to promptly respond to issues in a targeted fashion. This system avoids the need to submit requests to the various member countries for the use of politically budgeted funds and avoids the parochial, partisan, political processes of the parliaments of various Nation States.
The Bank of International Settlements (BIS) is a little-known private institution based in Basel, Switzerland. It also performs a critical function in the preservation of order in the global monetary system. Control of this institution is actually vested in private individuals. Not governmental officials. The principal functionaries are the Private Central Bankers from the world’s industrialized countries.
Like the IMF, the Bank of International Settlements functions in the nature of a world economic security net and clearing house. It is capable of moving billions of dollars from one country to another to expeditiously correct potentially disruptive financial imbalances between countries, and to effectuate the prompt administration of financial first aid to individual Nations and financial institutions in major crisis situations. The BIS also helps maintain the relative stability of the world currencies as well as the global system as a whole.