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Bretton Woods, swap lines, and the Federal Reserve’s return to intervention

Michael Bordo (), Owen Humpage and Anna Schwartz

No 1232, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper describes the United States’ first line of defense against shortcomings in the Bretton Woods system, which threatened the system’s continuation as early as 1960. The exposition describes the Federal Reserve’s use of swap lines both to provide cover for central banks’ unwanted dollar exposures, thereby forestalling claims on the U.S. gold stock, and to supply dollar liquidity to countries facing temporary balance-of-payments deficits, thereby bolstering confidence in their parities. As suggested by the expansion and growing use of the swap lines, the operations failed to distinguish between temporary and fundamental disequilibrium forces. In substituting temporary for fundamental adjustments, the lines ultimately proved inadequate.

Keywords: Bretton Woods Agreements Act; Financial markets; Monetary policy; International finance (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe and nep-mon
Date: 2012
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