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From Benign Neglect to Malignant Preoccupation: U.S. Balance-of-Payments Policy in the 1960s

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  • Barry Eichengreen

Abstract

U.S. balance-of-payments problems in the 1960s remain poorly understood. In this paper I argue that they had two aspects. On the one hand there was a problem of real overvaluation, evident in the erosion of the current account and reflecting the reluctance of the Fed, the Executive and Congress to subordinate domestic political and economic objectives to balance-of-payments goals. In addition there was the systemic aspect, that the main source of international liquidity for the expanding world economy was dollar balances. The role of the United States was to act as banker to the world, borrowing short and lending long. But just like a bank providing liquidity transformation services, the U.S. was vulnerable to a depositor run.' So long as foreign central banks, concerned to preserve the Bretton Woods System, stood ready to support the dollar, they provided the equivalent of deposit insurance. But unlike a classic lender of last resort, their willingness to do so was limited. When that limit was reached in 1971, the dollar -- and the Bretton Woods System -- came crashing down.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7630.

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Date of creation: Mar 2000
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Publication status: published as Perry, George L. and James Tobin (eds.) Economic events, ideas, and policies: The 1960s and after. Washington, D.C.: Brookings Institution Press, 2000.
Handle: RePEc:nbr:nberwo:7630

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  1. 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.
  2. Soskice, David, 1996. "German technology policy, innovation, and national institutional frameworks," Discussion Papers, Research Unit: Economic Change and Employment FS I 96-319, Social Science Research Center Berlin (WZB).
  3. Lindert, Peter H, 1971. "The Payments Impact of Foreign Investment Controls," Journal of Finance, American Finance Association, vol. 26(5), pages 1083-1100, December.
  4. Darby, Michael R. & Lothian, James R. & Gandolfi, Arthur E. & Schwartz, Anna J., 1983. "The International Transmission of Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226136417, January.
  5. Hans Genberg & Alexander Swoboda, 1993. "The Provision of Liquidity in the Bretton Woods System," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 269-316 National Bureau of Economic Research, Inc.
  6. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  8. Kenen, Peter B, 1973. "Convertibility and Consolidation: A Survey of Options for Reform," American Economic Review, American Economic Association, vol. 63(2), pages 189-98, May.
  9. Allan H. Meltzer, 1991. "U.S. policy in the Bretton Woods era," Review, Federal Reserve Bank of St. Louis, issue May, pages 54-83.
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Cited by:
  1. Stefano Battilossi, 2003. "Capital Mobility And Financial Repression In Italy, 1960-1990: A Public Finance Perspective," Working Papers in Economic History wh030602, Universidad Carlos III, Departamento de Historia Económica e Instituciones.

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