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

Kenneth Austin

Journal of Post Keynesian Economics, 2014, vol. 36, issue 4, 607-634

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.

Date: 2014
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