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Global Imbalances and the Lessons of Bretton Woods

  • Barry Eichengreen

An influential school of thought views the current international monetary and financial system as Bretton Woods reborn. Today, like 40 years ago, the international monetary system is composed of a core, which has the exorbitant privilege of issuing the currency used as international reserves, and a periphery, which is committed to export led growth based on the maintenance of an undervalued exchange rate. Then as now there is the same old core, the United States, but a new periphery, Asia. This view suggests that the current pattern of international settlements can be maintained indefinitely. In particular, there is no reason why the dollar must fall, since there is no need for balance of payments adjustment, and since the Asian countries will resist appreciation of their currencies of the greenback. In this paper I argue that this image of a new Bretton Woods System confuses the incentives that confront individual countries with those that confront groups of countries. It also overlooks important ways in which the world has changed since 1960. This alternative model suggests that if there indeed exists something resembling the Bretton Woods System, it does not have long to run.

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Article provided by CEPII research center in its journal Economie Internationale.

Volume (Year): (2004)
Issue (Month): 100 ()
Pages: 39-50

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Handle: RePEc:cii:cepiei:2004-4qc
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  1. Michael D. Bordo & Barry Eichengreen, 1997. "Implications of the Great Depression for the Development of the International Monetary System," NBER Working Papers 5883, National Bureau of Economic Research, Inc.
  2. Peter M. Garber, 1993. "The Collapse of the Bretton Woods Fixed Exchange Rate System," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 461-494 National Bureau of Economic Research, Inc.
  3. Allan H. Meltzer, 1991. "U.S. policy in the Bretton Woods era," Review, Federal Reserve Bank of St. Louis, issue May, pages 54-83.
  4. Michael D. Bordo & Barry Eichengreen, 1993. "A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform," NBER Books, National Bureau of Economic Research, Inc, number bord93-1.
  5. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
  6. Eichengreen, Barry, 2004. "Chinese Currency Controversies," CEPR Discussion Papers 4375, C.E.P.R. Discussion Papers.
  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.
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