Global Imbalances and the Lessons of Bretton Woods

Barry Eichengreen ()

No 10497, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An influential school of thought views the current international monetary and financial system as Bretton Woods reborn. Today, like 40 years ago, the international 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. In the 1960s, the core was the United States and the periphery was Europe and Japan. Now, with the spread of globalization, there is a new periphery, Asia, but the same old core, the United States, with the same tendency to live beyond its means. This view suggests that the current pattern of international settlements can be maintained indefinitely. The United States can continue running current account deficits because the emerging markets of Asia and Latin America are happy to accumulate dollars. There is no reason why the dollar must fall, since there is no need for balance of payments adjustment; in particular, the Asian countries will resist the appreciation of their currencies against the greenback. I argue that this image of a new Bretton Woods System confuses the incentives that confronted individual countries under Bretton Woods with the incentives that confronted groups of countries. It imagines the existence of a cohesive bloc of countries called the periphery ready and able to act in their collective interest. I argue, to the contrary, that the countries of Asia constituting the new periphery are unlikely to be able to subordinate their individual interest to the collective interest. This image of the current system as Bretton Woods reborn also overlooks how the world has changed since the 1960s. This alternative reading of history and current circumstances suggests that even if there exists today something vaguely resembling the Bretton Woods System, it is not long for this world.

JEL-codes: F3 N0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2004-05
Note: DAE IFM
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w10497.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Book: Global Imbalances and the Lessons of Bretton Woods (2006)
Journal Article: Global imbalances and the lessons of Bretton Woods (2005)
Journal Article: Global Imbalances and the Lessons of Bretton Woods (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:10497

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10497
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().