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Bretton Woods, swap lines, and the Federal Reserve’s return to intervention

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  • Michael D. Bordo
  • Owen F. Humpage
  • Anna J. Schwartz

Abstract

This paper describes the United States’ first line of defense against shortcomings in the Bretton Woods system, which threatened the system’s continuation as early as 1960. The exposition describes the Federal Reserve’s use of swap lines both to provide cover for central banks’ unwanted dollar exposures, thereby forestalling claims on the U.S. gold stock, and to supply dollar liquidity to countries facing temporary balance-of-payments deficits, thereby bolstering confidence in their parities. As suggested by the expansion and growing use of the swap lines, the operations failed to distinguish between temporary and fundamental disequilibrium forces. In substituting temporary for fundamental adjustments, the lines ultimately proved inadequate.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1232.

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Date of creation: 2012
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Handle: RePEc:fip:fedcwp:1232

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Keywords: Bretton Woods Agreements Act ; Financial markets ; Monetary policy ; International finance;

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  1. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2010. "U.S. Foreign-Exchange-Market Intervention and the Early Dollar Float: 1973 – 1981," NBER Working Papers 16647, National Bureau of Economic Research, Inc.
  2. Michael D. Bordo, 1993. "The Bretton Woods International Monetary System: A Historical Overview," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 3-108 National Bureau of Economic Research, Inc.
  3. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2011. "U.S. Intervention During the Bretton Woods Era: 1962-1973," NBER Working Papers 16946, National Bureau of Economic Research, Inc.
  4. B. Dianne Pauls, 1990. "U.S. exchange rate policy: Bretton Woods to present," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 891-908.
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