7/27/2019 Lecture 12 Bretton Woods
1/14
International Political Economy #12
The Bretton Woods Monetary System
William Kindred Winecoff
Indiana University Bloomington
October 10, 2013
W. K. Winecoff | IPE #12: Bretton Woods 1/14
http://find/7/27/2019 Lecture 12 Bretton Woods
2/14
The Need for a New System
After WWII the US:
Produced 50% of the worlds manufactures.
Owned 80% of the worlds gold reserves.
The postwar economy was clearly going to be dominated by the US.
The gold standard had failed.
W. K. Winecoff | IPE #12: Bretton Woods 2/14
http://find/7/27/2019 Lecture 12 Bretton Woods
3/14
The Goal
Reconstruct the global economy and produce interdependence.
Hopefully peace would come from prosperity (or vice versa).
Stable exchange rates can help trade.
Stable exchange rates can provide new democracies with the ability to
adjust policy to demands of their citizens.
But only if capital mobility is limited.
W. K. Winecoff | IPE #12: Bretton Woods 3/14
http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
4/14W. K. Winecoff | IPE #12: Bretton Woods 4/14
http://find/7/27/2019 Lecture 12 Bretton Woods
5/14W. K. Winecoff | IPE #12: Bretton Woods 5/14
http://goforward/http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
6/14
The Compromise
The $ would peg to gold to restrict the ability of US policymakers to
mess with $ value and every one else would peg to the $.
Sort of a modified gold standard.
Adjustable pegs built some flexibility into system.
Short-term capital financial deficits covered by the International
Monetary Fund.
W. K. Winecoff | IPE #12: Bretton Woods 6/14
http://goforward/http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
7/14
The Politics
This arrangement was the result of, and reinforced, American power:
hierarchy.
The $ becomes the key reserve currency and the globalcurrency for foreign exchange purposes.
It was governed by the IMF: institutionalization.
It firmly entrenched the US at the core of a global monetary system:
interconnectedness.
W. K. Winecoff | IPE #12: Bretton Woods 7/14
http://find/7/27/2019 Lecture 12 Bretton Woods
8/14
The Performance
W. K. Winecoff | IPE #12: Bretton Woods 8/14
http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
9/14
The Performance
W. K. Winecoff | IPE #12: Bretton Woods 9/14
http://find/7/27/2019 Lecture 12 Bretton Woods
10/14
A Keynesian Consensus
Governments smooth over short-run fluctuations in the business cycle.
Economic stability enhanced political stability.
Although many challenges during these years: Red Armies in
Italy and Japan, Baader-Meinhof gang in Germany,SDS/Weather Underground in the US, etc.
The interests of labor are prioritized: high top marginal tax rates, high
levels of unionization, expanding social welfare programs, expanding the
franchise.
Capital regulated at home and restricted from moving abroad.
W. K. Winecoff | IPE #12: Bretton Woods 10/14
http://goforward/http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
11/14
The Contradiction
It was also doomed.
To grow, states needed to trade.
To trade, the supply of $ used internationally (eurodollars,confusingly) also had to grow.
But $ was fixed in price to gold (at $35/oz), and gold supply
didnt grow as fast as the rest of global economy.
The Triffin Dilemma.
W. K. Winecoff | IPE #12: Bretton Woods 11/14
http://find/http://goback/7/27/2019 Lecture 12 Bretton Woods
12/14
Dollar As Lingua Franca
W. K. Winecoff | IPE #12: Bretton Woods 12/14
http://find/7/27/2019 Lecture 12 Bretton Woods
13/14
Monetary Power
This gave the US quite a lot of power.
Suez Crisis
Exorbitant PrivilegeVietnam
But it also led to a stockpiling of imbalances that eventually destroyed
the system.
W. K. Winecoff | IPE #12: Bretton Woods 13/14
http://find/7/27/2019 Lecture 12 Bretton Woods
14/14
The End
1968: two-tier market: private $ no longer redeemable for gold.
1971: $-gold convertibility is suspended.
1973: The dollar is floated and set by market price.
The original Bretton Woods system was gone. What would happen to
American prominence?
W. K. Winecoff | IPE #12: Bretton Woods 14/14
http://find/Top Related