IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary SYstem

  • Michael D. Bordo
  • Barry Eichengreen

In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress four points. First, the gold-exchange standard was a recent arrangement that emerged only around 1900 in response to a set of historically-specific factors which also help to account for it smooth operation. How long those factors would have continued to support it will never be known, due to a great war and then a great depression. Second, a system which relied on inelastically supplied precious metal and elastcially suppled foreign exchange to meet the the world economy's demand for reserves was intrinsically fragile, prone to confidence problems, and a transmission belt for policy mistakes. Third, network externalities, statutory restrictions and habit all contributed to the persistence of the practice of holding gold reserves. But the hold of even factors as powerful as these inevitably weakens with time and the effects of their erosion are reinforced by the rise of international capital mobility, which increases the ease of holding other forms of reserves, both unborrowed and borrowed, and by the shift to greater exchange-rate flexibility, which according to our results diminishes the demand for reserves in general. Fourth and finally, network externalities, in conjunction with central bankers' collective sense of responsibility for the stability of the price of what remains an important reserve asset, suggest that the same factors which have long held in place the practice of holding gold reserves, when they come unstuck, may become unstuck all at once.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w6436.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6436.

as
in new window

Length:
Date of creation: Mar 1998
Date of revision:
Publication status: Published as "Is There a Good Case for a New Bretton Woods International Monetary System?", American Economic Review, Vol. 85, no. 2 (1995): 317-322 .
Handle: RePEc:nbr:nberwo:6436
Note: IFM ME
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  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. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(04), pages 789-805, December.
  3. 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.
  4. Tamim Bayoumi and Barry Eichengreen., 1994. "The Stability of the Gold Standard and the Evolution of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-040, University of California at Berkeley.
  5. Obstfeld, Maurice, 1992. "The Adjustment Mechanism," CEPR Discussion Papers 648, C.E.P.R. Discussion Papers.
    • Maurice Obstfeld, 1993. "The Adjustment Mechanism," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 201-268 National Bureau of Economic Research, Inc.
  6. Buiter, W., 1988. "A Viable Gold Standard Requires Flexible Monetary And Fiscal Policy," Papers 306, London School of Economics - Centre for Labour Economics.
  7. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
  8. J. M. Landell-Mills, 1989. "The Demand for International Reserves and Their Opportunity Cost," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 708-732, September.
  9. Mundell, Robert A, 1973. "The Monetary Consequences of Jacques Rueff: Review Article," The Journal of Business, University of Chicago Press, vol. 46(3), pages 384-95, July.
  10. Robert A. Mundell, 1983. "International Monetary Options," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 189-210, Spring.
  11. Hugh Rockoff & Michael D. Bordo, 1996. "The Gold Standard as a "Good Housekeeping Seal of Approval"," Departmental Working Papers 199528, Rutgers University, Department of Economics.
  12. Barry Eichengreen & Peter Temin, 1997. "The Gold Standard and the Great Depression," NBER Working Papers 6060, National Bureau of Economic Research, Inc.
  13. Bertola, Giuseppe & Caballero, Ricardo J, 1992. "Target Zones and Realignments," American Economic Review, American Economic Association, vol. 82(3), pages 520-36, June.
  14. Michael D. Bordo, 1981. "The classical gold standard: some lessons for today," Review, Federal Reserve Bank of St. Louis, issue May, pages 2-17.
  15. Barry Eichengreen and Marc Flandreau., 1994. "The Geography of the Gold Standard," Center for International and Development Economics Research (CIDER) Working Papers C94-042, University of California at Berkeley.
  16. Salant, Stephen W, 1983. "The Vulnerability of Price Stabilization Schemes to Speculative Attack," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 1-38, February.
  17. Hugh Rockoff, 1984. "Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 613-650 National Bureau of Economic Research, Inc.
  18. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234 Elsevier.
  19. Townsend, Robert M., 1977. "The eventual failure of price fixing schemes," Journal of Economic Theory, Elsevier, vol. 14(1), pages 190-199, February.
  20. 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.
  21. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-75, December.
  22. repec:ucp:bknber:9780226065878 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6436. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.