The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement

Thomas Palley

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: Dooley et al. (2003) have argued that today’s international financial system has structural similarities with the earlier Bretton Woods (1946 – 71) arrangements and is stable. This paper argues that the comparison is misplaced and ignores fundamental microeconomic differences, and that today’s system is also vulnerable to a crash. Eichengreen (2004) and Goldstein and Lardy (2005) have also argued that the system is unsustainable. However, their focus is the sustainability of financing to cover the U.S. trade deficit, whereas the current paper focuses on inadequacies on the system’s demand side. The paper concludes with suggestions for a global system of managed exchange rates that should replace the current system – hopefully, before it crashes.

Keywords: Revised Bretton Woods; export-led growth; aggregate demand (search for similar items in EconPapers)
JEL-codes: F02 F32 F33 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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