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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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Paper provided by Peterson Institute for International Economics in its series Peterson Institute 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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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  1. 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. [Downloadable!] (restricted)
  2. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Peterson Institute Working Paper Series WP04-1, Peterson Institute for International Economics. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," NBER Working Papers 10497, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. 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, issue Sep. [Downloadable!]
  6. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "Direct investment, rising real wages and the absorption of excess labor in the periphery," Proceedings, Federal Reserve Bank of San Francisco, issue Feb. [Downloadable!]
    Other versions:
  7. 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. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yýlmaz Akyüz, . "Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries," Working Papers 2007/5, Turkish Economic Association. [Downloadable!]
  2. Thomas I Palley, 2006. "The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement," Working Papers wp114, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  3. Maurice Obstfeld, 2007. "The Renminbifs Dollar Peg at the Crossroads," IMES Discussion Paper Series 07-E-11, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
    Other versions:
  4. Joerg Bibow, 2006. "Global Imbalances, Bretton Woods II, and Euroland's Role in All This," Economics Working Paper Archive wp_486, Levy Economics Institute, The. [Downloadable!]
  5. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Vincent Bouvatier, 2007. "Hot Money Inflows and Monetary Stability in China: How the People's Bank of China Took up the Challenge," Money Macro and Finance (MMF) Research Group Conference 2006 161, Money Macro and Finance Research Group. [Downloadable!]
  7. Piffaretti, Nadia F., 2008. "Reshaping the International Monetary Architecture and Addressing Global Imbalances: Lessons from the Keynes Plan," MPRA Paper 12165, University Library of Munich, Germany. [Downloadable!]
  8. Thomas I. Palley, 2009. "After the Bust: The Outlook for Macroeconomics and Macroeconomic Policy," Economics Public Policy Brief Archive ppb_97, Levy Economics Institute, The. [Downloadable!]
  9. Vincent Bouvatier, 2006. "Hot money inflows in China : How the people's bank of China took up the challenge," Cahiers de la Maison des Sciences Economiques bla06011, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  10. Frankel, Jeffrey A & Wei, Shang-Jin, 2007. "Assessing China’s Exchange Rate Regime," CEPR Discussion Papers 6264, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Céline Rochon & Geneviève Verdier & Leslie Lipschitz, 2008. "A Real Model of Transitional Growth and Competitiveness in China," IMF Working Papers 08/99, International Monetary Fund. [Downloadable!]
  12. Morris Goldstein & Nicholas Lardy, 2006. "China's Exchange Rate Policy Dilemma," American Economic Review, American Economic Association, vol. 96(2), pages 422-426, May. [Downloadable!]
  13. Philip Lane & Sergio Schmukler, 2007. "The Evolving Role of China and India in the Global Financial System," Open Economies Review, Springer, vol. 18(4), pages 499-520, September. [Downloadable!] (restricted)
  14. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "The renminbi equilibrium exchange rate: an agnostic view," Documents de Travail de l'OFCE 2006-13, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  15. Lane, Philip R. & Schmukler, Sergio L., 2007. "The international financial integration of China and India," Policy Research Working Paper Series 4132, The World Bank. [Downloadable!]
    Other versions:
  16. Thomas I. Palley, 2006. "THE FALLACY OF THE REVISED BRETTON WOODS HYPOTHESIS: Why TodayÕs International Financial System Is Unsustainable," Economics Public Policy Brief Archive ppb_85, Levy Economics Institute, The. [Downloadable!]
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