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Systemic equilibrium in a Bretton Woods II-type international monetary system: the special roles of reserve issuers and reserve accumulators

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  • Kenneth Austin

Abstract

This article develops a model, based on balance-of-payment identities, of the new international monetary system (Bretton Woods II or BWII). It shows that if some countries engineer current account surpluses by exchange-rate manipulation and foreign-reserve accumulation, the burden of the corresponding current account deficits falls first on the reserve-issuing countries, unless those savings inflows are diverted elsewhere. The imbalances of the BWII period result from official, policy-driven reserve flows, rather than market-determined, private savings flows. The struggle to divert these unwanted financing flows is at the root of the "currency wars" within the system.

Suggested Citation

  • Kenneth Austin, 2014. "Systemic equilibrium in a Bretton Woods II-type international monetary system: the special roles of reserve issuers and reserve accumulators," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(4), pages 607-634.
  • Handle: RePEc:mes:postke:v:36:y:2014:i:4:p:607-634 DOI: 10.2753/PKE0160-3477360402
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    Blog mentions

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      by Marco Antonio Moreno in Elblogsalmon on 2014-09-10 08:14:45
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      by Michael Pettis in China Financial Markets on 2014-10-05 18:46:31
    3. 10 Reasons Why Reserve Currency Status Is An "Exorbitant Burden"
      by Tyler Durden in Zero Hedge on 2014-10-07 04:01:12
    4. Full employment, trade deficits, and the dollar as reserve currency. What are the connections?
      by Jared Bernstein in On the Economy on 2014-10-07 17:31:38
    5. How might a China slowdown affect the world?
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    6. How might a China slowdown affect the world?
      by Michael Pettis in Credit Writedowns on 2014-12-02 22:02:33
    7. Will the AIIB one day matter?
      by Michael Pettis in China Financial Markets on 2015-04-11 18:33:11
    8. How we calculate US job losses from currency management
      by Jared Bernstein in On the Economy on 2015-05-11 21:02:32

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