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Do old habits die hard? Central banks and the Bretton Woods gold puzzle

Author

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  • Eric Monnet

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research - CEPR)

  • Damien Puy

    (IMF - IMF - International Monetary Fund)

Abstract

We assess the importance of individual and institutional experience in shaping macroeconomic policy by studying the persistence of gold standard monetary practices in the Bretton Woods system. Using new data from the IMF archives, we show that, although they were not required to, countries continued to back currency in circulation with gold. The longer an institution spent in the gold standard (and the older the policymakers), the tighter the link between gold and currency. Such "old habits" prevented dollars and gold from working as perfect substitutes and ultimately contributed to the demise of the Bretton Woods system. Our findings highlight the persistence of past practices, even in the face of radical institutional change, and its consequences on the international monetary system.

Suggested Citation

  • Eric Monnet & Damien Puy, 2020. "Do old habits die hard? Central banks and the Bretton Woods gold puzzle," PSE-Ecole d'économie de Paris (Postprint) halshs-02973035, HAL.
  • Handle: RePEc:hal:pseptp:halshs-02973035
    DOI: 10.1016/j.jinteco.2020.103394
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02973035
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    Cited by:

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    2. Rathi, Sawan & Mohapatra, Sanket & Sahay, Arvind, 2021. "Central bank gold reserves and sovereign credit risk," IIMA Working Papers WP 2021-03-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Omar Zulaica, 2020. "What share for gold? On the interaction of gold and foreign exchange reserve returns," BIS Working Papers 906, Bank for International Settlements.

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    More about this item

    Keywords

    Central banking; Foreign reserves; Culture & beliefs; Bretton Woods; Gold; International monetary system;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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