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China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity

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Author Info

  • Morris Goldstein

    ()

  • Nicholas R. Lardy

    ()
    (Institute for International Economics)

Abstract

This paper argues that the way in which China is portrayed in the revived Bretton Woods thesis (BW2) is not consistent with several important trends in, and features of, the Chinese economy; nor does the strategy in the BW2 seem sensible for China's long-term economic development. Whether it is the behavior of China's real exchange rate, the costs of sterilizing large reserve inflows, the role that FDI plays in financing China's fixed asset investment, the participation of foreign firms in China's exports and in the ownership of export industries, or the political economy of trade protectionism in the United States, the BW2 does not provide a good explanation either for how China has behaved in the past or how it should behave in the future. We conclude that the BW2 does not provide a persuasive story for why large US current account deficits and undervalued Asian exchange rates can or should continue for the next decade or longer.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP05-2.

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Date of creation: Mar 2005
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Handle: RePEc:iie:wpaper:wp05-2

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Related research

Keywords: China's exchange rate policies; revived Bretton Woods system; Chinese economy;

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References

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  1. Morris Goldstein & Nicholas R. Lardy, 2004. "What Kind of Landing for the Chinese Economy?," Policy Briefs PB04-07, Peterson Institute for International Economics.
  2. Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," NBER Working Papers 10497, National Bureau of Economic Research, Inc.
  3. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  4. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2004. "The US Current Account Deficit and Economic Development: Collateral for a Total Return Swap," NBER Working Papers 10727, National Bureau of Economic Research, Inc.
  5. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
  6. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
  7. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2007. "Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 103-132 National Bureau of Economic Research, Inc.
  8. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
  9. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Working Paper Series WP04-1, Peterson Institute for International Economics.
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