New Zealand’s Exchange Rate Regime, the Collapse of Bretton Woods,and the Twilight of the Sterling Area
AbstractHow did developing countries adapt to the collapse of the Bretton Woods system? Using new archival evidence, we argue that New Zealand offers an interesting case study of decision-making in a small economy dependent on primary production with close economic and political links to two larger partners – Britain and Australia – with divergent domestic policies. After some experimentation, New Zealand adopted an innovative intermediate solution for the exchange rate that aimed to generate stability for primary producers during a period when the direction of trade was diversifying and most currencies were floating. This imaginative policy was not accompanied by comparable changes in reserves management, and until 1975 New Zealand continued to hold the bulk of its reserves in sterling. The article explores the different priorities and institutional constraints affecting the choice of anchor currency and reserve currency in this context.
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Bibliographic InfoPaper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0030.
Date of creation: Oct 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-08 (All new papers)
- NEP-CBA-2007-12-08 (Central Banking)
- NEP-HIS-2007-12-08 (Business, Economic & Financial History)
- NEP-IFN-2007-12-08 (International Finance)
- NEP-MON-2007-12-08 (Monetary Economics)
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- David Hargreaves & Elizabeth Watson, 2011. "Sudden stops, external debt and the exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 74, pages 1-11, December.
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