Payments Arrangements for Less Developed Countries: The Role of Foreign Assistance. Impetus, Elements and Impediments. The Case for European Monetary Integration. The World Monetary System: A Minimal Reform Program. The Case for the Par-Value System, The Choice of a Pivot for Parities. The Reform of the International Payments System. European Monetary Unification for Balanced Growth: Towards New Monetary Relationships.
Currency Devaluation in Developing Countries. The Dollar and the Policy Mix: Experience with Canada's Floating Rate. Katz, and William H. How to Divest in Latin America, and Why. Private and Official International Money: The Case for the Dollar. Toward Limited Exchange-Rate Flexibility. Behind the Veil of International Money. Conditions of Equilibrium and the Price of Gold. Foreign Aid--A Critique and a Proposal.
Deficits Benign and Malignant. Gold and the International Monetary System: Changing the United States Commitment to Gold. Optimum Adjustment Processes and Currency Areas. Barbarous Relic or Useful Instrument? New Proposals for the International Finance of Development. Toward Assessing the Need for International Reserves. United States Gold Policy: The Case for Change. Reserves, Reserve Currencies, and Vehicle Currencies: Problems of the International Monetary System. Requirements of an International Reserve System.
The Role and the Rule of Gold: Monetary Policy in an Open Economy: Its Objectives, Instruments, Limitations, and Dilemmas. Recent Trends in International Monetary Policies. Current Issues in Commodity Policy. Sterling, Speculation and European Convertibility: Its Present Role and Future Prospects. Gold in World Monetary Affairs Today. The International Bank for Reconstruction and Development. The International Status of the Dollar.
Two Approaches to the Exchange-Rate Problem: The United Kingdom and Canada. The Belgium-Luxembourg Economic Union, Lessons from an Early Experiment. United States Merchant Marine Policies: The Bank for International Settlements, Agricultural Price Policy and International Trade. The Emerging Pattern of International Payments. Problems of the Sterling Area: With Special Reference to Australia. Dollar Shortage and Oil Surplus in The Cause and Cure of Dollar Shortage. Some European Currency and Exchange Experiences: The British Balance-of-Payments Problem.
Bilateralism and the Future of International Trade. Conditions of International Monetary Equilibrium. International Aspects of Wartime Monetary Experience. Fundamentals of International Monetary Policy. The Keynes and White Proposals. The Microstructure of the Foreign-Exchange Market: A Selective Survey of the Literature.
Trade Elasticities for the G-7 Countries.
Bretton Woods system
Interpreting the ERM Crisis: Country-Specific and Systemic Issues. Foreign Direct Investment and Capital Flight. The Macroeconomics of European Agriculture. One Money or Many? The German Buybacks, A Cure for Overhang? Should the Maastricht Treaty Be Saved? External Debt, Adjustment, and Burden Sharing: Economic Summit Declarations, Examining the Written Record of International Cooperation. Economic Reform in the Soviet Union: Pas de Deux between Disintegration and Macroeconomic Destabilization.
Can Swaps Solve the Debt Crisis? Lessons from the Chilean Experience. The Emergence and Persistence of the U. Obstacles to International Macroeconomic Policy Coordination. Devaluation, External Balance, and Macroeconomic Performance: A Look at the Numbers. American "Reparations" to Germany, Implications for the Third-World Debt Crisis.
Estimates, Issues, and Explanations. The Current-Account Balance and the Dollar: Real-Exchange-Rate Variability from to and to Rules for Regulating Intervention under a Managed Float. Theoretical Issues in International Borrowing. Reserve-Currency Diversification and the Substitution Account. Toward an Explanation of National Price Levels.
Intervention in the Exchange Market for DM, Exchange-Rate Management in Theory and Practice.
Flexible Exchange Rates in Historical Perspective. Sterling and the Tariff, The Operations of the Exchange Equalisation Account, London, Washington, and the Management of the Franc, Currency Risks in International Finance Markets. The Monetary Approach to the Balance of Payments: Exchange-Rate Stabilization in the Mids: Negotiating the Tripartite Agreement. Capital Mobility and Financial Integration: Organization and Administration of a Monetary Union. A Factor in Export Demand for Manufactures. The Formation of Financial Centers: A Study in Comparative Economic History. The Reconstruction of the International Monetary System: The Attempts of and The Cost of Tying Aid: A Method and Some Colombian Estimates.
The Demand for International Reserves. An Exploratory Empirical Study. Key Currencies and Gold, Living Law and Emerging Practice.
Patterns of Fluctuation in International Investment Before Test of A Theory. International and Interregional Payments Adjustment: Adjustment Costs and the Distribution of New Reserves. The External Liquidity of an Advanced Country. The Management of the Dollar in International Finance. The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives. An Annotated Chronicle, Never before had international monetary cooperation been attempted on a permanent institutional basis.
Even more groundbreaking was the decision to allocate voting rights among governments, not on a one-state one-vote basis, but rather in proportion to quotas. Since the United States was contributing the most, U. It regularly exchanged personnel with the U. Truman named White as its first U. Since no Deputy Managing Director post had yet been created, White served occasionally as Acting Managing Director and generally played a highly influential role during the IMF's first year.
The agreement made no provisions to create international reserves. It assumed new gold production would be sufficient. In the event of structural disequilibria , it expected that there would be national solutions, for example, an adjustment in the value of the currency or an improvement by other means of a country's competitive position. The IMF was left with few means, however, to encourage such national solutions. Economists and other planners recognized in that the new system could only commence after a return to normality following the disruption of World War II. It was expected that after a brief transition period of no more than five years, the international economy would recover and the system would enter into operation.
To promote growth of world trade and finance postwar reconstruction of Europe, the planners at Bretton Woods created another institution, the International Bank for Reconstruction and Development IBRD , which is one of five agencies that make up the World Bank Group, and is perhaps now the most important agency [of the World Bank Group].
The IBRD was to be a specialized agency of the United Nations, charged with making loans for economic development purposes. The Bretton Woods arrangements were largely adhered to and ratified by the participating governments. It was expected that national monetary reserves, supplemented with necessary IMF credits, would finance any temporary balance of payments disequilibria.
But this did not prove sufficient to get Europe out of its conundrum. Postwar world capitalism suffered from a huge dollar shortage. The United States was running huge balance of trade surpluses, and the U. It was necessary to reverse this flow. Even though all nations wanted to buy U. In other words, the United States would have to reverse the imbalances in global wealth by running a balance of trade deficit, financed by an outflow of U. Recall that speculative investment was discouraged by the Bretton Woods agreement.
Importing from other nations was not appealing in the s, because U. So, multinational corporations and global aid that originated from the U. The modest credit facilities of the IMF were clearly insufficient to deal with Western Europe's huge balance of payments deficits. The problem was further aggravated by the reaffirmation by the IMF Board of Governors in the provision in the Bretton Woods Articles of Agreement that the IMF could make loans only for current account deficits and not for capital and reconstruction purposes.
In addition, because the only available market for IBRD bonds was the conservative Wall Street banking market, the IBRD was forced to adopt a conservative lending policy, granting loans only when repayment was assured. Given these problems, by the IMF and the IBRD themselves were admitting that they could not deal with the international monetary system's economic problems.
The United States set up the European Recovery Program Marshall Plan to provide large-scale financial and economic aid for rebuilding Europe largely through grants rather than loans. Countries belonging to the Soviet bloc, e. Secretary of State George Marshall stated:. The breakdown of the business structure of Europe during the war was complete.
From until , the U. Dollars flowed out through various U. Greek and Turkish regimes, which were struggling to suppress communist revolution, aid to various pro-U. To encourage long-term adjustment, the United States promoted European and Japanese trade competitiveness. Policies for economic controls on the defeated former Axis countries were scrapped. Aid to Europe and Japan was designed to rebuild productivity and export capacity. In the long run it was expected that such European and Japanese recovery would benefit the United States by widening markets for U.
In , Roosevelt and Churchill prepared the postwar era by negotiating with Joseph Stalin at Yalta about respective zones of influence; this same year Germany was divided into four occupation zones Soviet, American, British, and French. In the past, the reasons why the Soviet Union chose not to subscribe to the articles by December have been the subject of speculation. But since the release of relevant Soviet archives, it is now clear that the Soviet calculation was based on the behavior of the parties that had actually expressed their assent to the Bretton Woods Agreements.
Facing the Soviet Union, whose power had also strengthened and whose territorial influence had expanded, the U. The rise of the postwar U. Despite the economic effort imposed by such a policy, being at the center of the international market gave the U. A trade surplus made it easier to keep armies abroad and to invest outside the U. The dollar continued to function as a compass to guide the health of the world economy, and exporting to the U.
This arrangement came to be referred to as the Pax Americana , in analogy to the Pax Britannica of the late 19th century and the Pax Romana of the first. As world trade increased rapidly through the s, the size of the gold base increased by only a few percentage points. In , the U. More drastic measures were proposed, but not acted upon. However, with a mounting recession that began in , this response alone was not sustainable. The design of the Bretton Woods System was that nations could only enforce gold convertibility on the anchor currency—the United States' dollar.
Gold convertibility enforcement was not required, but instead, allowed.
Finance & Development, September : Finance & Development, September
Nations could forgo converting dollars to gold, and instead hold dollars. Rather than full convertibility, it provided a fixed price for sales between central banks. However, there was still an open gold market. The greater the gap between free market gold prices and central bank gold prices, the greater the temptation to deal with internal economic issues by buying gold at the Bretton Woods price and selling it on the open market.
In Robert Triffin , Belgian American economist, noticed that holding dollars was more valuable than gold because constant U. What would later come to be known as Triffin's Dilemma was predicted when Triffin noted that if the U. But incurring such payment deficits also meant that, over time, the deficits would erode confidence in the dollar as the reserve currency created instability.
The first effort was the creation of the London Gold Pool on 1 November between eight nations. The theory behind the pool was that spikes in the free market price of gold, set by the morning gold fix in London, could be controlled by having a pool of gold to sell on the open market, that would then be recovered when the price of gold dropped. The Kennedy administration drafted a radical change of the tax system to spur more production capacity and thus encourage exports.
In , there was an attack on the pound and a run on gold in the sterling area , and on 18 November , the British government was forced to devalue the pound. President Lyndon Baines Johnson was faced with a brutal choice, either institute protectionist measures, including travel taxes, export subsidies and slashing the budget—or accept the risk of a "run on gold" and the dollar.
He believed that the priorities of the United States were correct, and, although there were internal tensions in the Western alliance, that turning away from open trade would be more costly, economically and politically, than it was worth: While West Germany agreed not to purchase gold from the U. In January Johnson imposed a series of measures designed to end gold outflow, and to increase U. This was unsuccessful, however, as in mid-March a dollar run on gold ensued through the free market in London, the London Gold Pool was dissolved first by the institution of ad hoc UK bank holidays at the request of the U.
This was followed by a full closure of the London gold market, also at the request of the U. All attempts to maintain the peg collapsed in November , and a new policy program attempted to convert the Bretton Woods system into an enforcement mechanism of floating the gold peg, which would be set by either fiat policy or by a restriction to honor foreign accounts.
In the s and s, important structural changes eventually led to the breakdown of international monetary management.
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One change was the development of a high level of monetary interdependence. The stage was set for monetary interdependence by the return to convertibility of the Western European currencies at the end of and of the Japanese yen in Convertibility facilitated the vast expansion of international financial transactions, which deepened monetary interdependence. Another aspect of the internationalization of banking has been the emergence of international banking consortia. Since various banks had formed international syndicates, and by over three quarters of the world's largest banks had become shareholders in such syndicates.
Multinational banks can and do make huge international transfers of capital not only for investment purposes but also for hedging and speculating against exchange rate fluctuations. These new forms of monetary interdependence made possible huge capital flows. During the Bretton Woods era, countries were reluctant to alter exchange rates formally even in cases of structural disequilibria. Because such changes had a direct impact on certain domestic economic groups, they came to be seen as political risks for leaders. As a result, official exchange rates often became unrealistic in market terms, providing a virtually risk-free temptation for speculators.
They could move from a weak to a strong currency hoping to reap profits when a revaluation occurred. If, however, monetary authorities managed to avoid revaluation, they could return to other currencies with no loss. The combination of risk-free speculation with the availability of huge sums was highly destabilizing. A second structural change that undermined monetary management was the decline of U. By the mids, the E. With total reserves exceeding those of the U.
The shift toward a more pluralistic distribution of economic power led to increasing dissatisfaction with the privileged role of the U. As in effect the world's central banker, the U. In an increasingly interdependent world, U. In addition, as long as other countries were willing to hold dollars, the U. The Soviet military threat had been an important force in cementing the U. As gross domestic production grew in European countries, trade grew. When common security tensions lessened, this loosened the transatlantic dependence on defence concerns, and allowed latent economic tensions to surface.
Reinforcing the relative decline in U. The Vietnam War and the refusal of the administration of U. Johnson to pay for it and its Great Society programs through taxation resulted in an increased dollar outflow to pay for the military expenditures and rampant inflation, which led to the deterioration of the U.
In the late s, the dollar was overvalued with its current trading position, while the German Mark and the yen were undervalued; and, naturally, the Germans and the Japanese had no desire to revalue and thereby make their exports more expensive, whereas the U. In contrast, upon the creation of Bretton Woods, with the U. Throughout the s Washington sustained a balance of payments deficit to finance loans, aid, and troops for allied regimes. But during the s the costs of doing so became less tolerable. By the U. Adjustment to these changed realities was impeded by the U.
Gold outflows from the U. Special drawing rights SDRs were set as equal to one U. Nations were required to accept holding SDRs equal to three times their allotment, and interest would be charged, or credited, to each nation based on their SDR holding. The original interest rate was 1. The intent of the SDR system was to prevent nations from buying pegged gold and selling it at the higher free market price, and give nations a reason to hold dollars by crediting interest, at the same time setting a clear limit to the amount of dollars that could be held.
A negative balance of payments , growing public debt incurred by the Vietnam War and Great Society programs, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued. This, in the view of neoclassical economists , represented the point where holders of the dollar had lost faith in the ability of the U. In more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the Nixon Shock.
The August shock was followed by efforts under U. Throughout the fall autumn of , a series of multilateral and bilateral negotiations between the Group of Ten countries took place, seeking to redesign the exchange rate regime. The group also planned to balance the world financial system using special drawing rights alone. The agreement failed to encourage discipline by the Federal Reserve or the United States government.
The Federal Reserve was concerned about an increase in the domestic unemployment rate due to the devaluation of the dollar. In attempt to undermine the efforts of the Smithsonian Agreement, the Federal Reserve lowered interest rates in pursuit of a previously established domestic policy objective of full national employment.
With the Smithsonian Agreement, member countries anticipated return flow of dollars to the U. S, but the reduced interest rates within the United States caused dollars to continue to flow out of the U.
The inflow of dollars into foreign banks continued the monetization process of the dollar overseas, defeating the aims of the Smithsonian Agreement. This proved to be the beginning of the collapse of the Bretton Woods System. The end of Bretton Woods was formally ratified by the Jamaica Accords in By the early s, all industrialised nations were using floating currencies. The periphery is committed to export-led growth based on the maintenance of an undervalued exchange rate.
In the s, the core was the United States and the periphery was Europe and Japan. This old periphery has since graduated , and the new periphery is Asia. The core remains the same, the United States. The argument is that a system of pegged currencies—in which the periphery exports capital to the core, which serves an intermediary financial role—is both stable and desirable, although this notion is controversial. In the wake of the Global financial crisis of , some policymakers [ who?
On the other side, this crisis has revived the debate about Bretton Woods II. On 24—25 September U. President Obama hosted the G20 in Pittsburgh. A realignment of currency exchange rates was proposed. This meeting's policy outcome could be known as the Pittsburgh Agreement of , where deficit nations may devalue their currencies and surplus nations may revalue theirs upward.
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In March , Prime Minister Papandreou of Greece wrote an op-ed in the International Herald Tribune, in which he said, "Democratic governments worldwide must establish a new global financial architecture, as bold in its own way as Bretton Woods, as bold as the creation of the European Community and European Monetary Union.
And we need it fast. Over the course of the crisis, the IMF progressively relaxed its stance on "free-market" principles such as its guidance against using capital controls. From Wikipedia, the free encyclopedia. History of economics Schools of economics Mainstream economics Heterodox economics Economic methodology Economic theory Political economy Microeconomics Macroeconomics International economics Applied economics Mathematical economics Econometrics.
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Please help improve this section by adding citations to reliable sources. March Learn how and when to remove this template message. Columbia University Press , and yuvi. Indiana University Press , Columbia University Press, , p. Cambridge University Press, , vol. Reinhart and Kenneth S. Mason and Robert E. Brookings Institution , , The Origin and Fundamentals of U. World Dominance , 2nd ed. London and Sterling, VA: Pluto Press, , ch. The Bankers Who Broke the World. Churchill " in Essays in Persuasion, edited by Donald Moggridge. John Maynard Keynes — London, Toronto, New York: The Origins of International Economic Disorder: States and the Reemergence of Global Finance: From Bretton Woods to the s.
Cambridge Journal of Economics. Fighting for Britain —". Brad Delong, Berkeley university. Archived from the original on 14 October Retrieved 14 June Econometrics Laboratory - University of California, Berkeley. The Memoirs of Cordell Hull: Learning in Modern International Society: The United States and Western Europe, —". Journal of Peace Research. Archived from the original PDF on 16 January Retrieved 25 March Skidelsky, John Maynard Keynes , , pp.
Cornell University Press,