But President Nixon failed to grasp that higher inflation stemmed from U. He pressured Fed Chairman Arthur Burns to hold off raising interest rates in the run-up to the elections, and Burns wound up supporting wage and price controls that were counterproductive. Second, as international capital mobility proliferated, it became harder to maintain fixed exchange rates as capital flowed out of high inflation countries into ones with low inflation.
This situation created problems for European policymakers, especially those in West Germany, Holland and Switzerland, where the primary objective of monetary policy was to keep inflation low, typically at 2 percent or less. Milton Friedman maintained that the shift to flexible exchange rates was desirable because it allowed countries with low inflation to regain control of their money supplies. For some economists and policymakers, however, the lapse into floating exchange rates meant deficit countries no longer were constrained by their balance of payments.
Today, even the most ardent supporters of flexible exchange rates would concede that currency fluctuations have been much greater than expected. Meanwhile, the international financial system has evolved into a hybrid system: The European Monetary Union has a common currency, the euro, which fluctuates freely against the U.
The dollar, in turn, serves as the key reserve currency and numeraire for the system. These arrangements have proved to be compatible with low inflation for the past 25 years. They include the Asian Financial Crisis, the tech bubble, the U. The Fed views these shocks as isolated developments that can be contained by regulatory policies. Decolonization is a period of time after the WWII where overseas territories of big empires such as the Great Britain and France gained independence.
Decolonization negatively affected Britain. Therefore, in order to reform its economy, bilateral trade with the United States was its best and most efficient choice, since the US was one of the strongest and most economically stable countries during the post war period Figure 3 and Figure 4. As labeled in the graph, during the first dollar crisis in , the exchange rate dropped rapidly from around 0.
It continued to drop during the second dollar crisis in and the third one in , which happened right before the collapse of the Bretton Woods system. Many previous work have been done to research the cause of the breakdown of the Bretton Woods system. Then, it weighs and analyses divergent viewpoints in depth within a historical context. The method is mainly to support and undermine different factors using other researches and data. Figure 1.
Figure 2. Payoff matrix of devaluation of currency during Bretton Woods period. Figure 3. Timeline of the dollar crisis during the Bretton Woods system period.
Figure 4. Laurent PELE. First, structural factors play an essential role in the breakdown of the Bretton Woods system. Han [2] claims that the structuralists believe that it was the deficit in the Bretton Woods system itself that caused the breakdown.
The other requirement, an inflow of dollars, would result in trade surplus, stabilizing the dollar as the central currency. Wolff argues that conflicting sovereign goals and self-interests of the big powers of the conference, Britain and the United States, have caused decolonization, which was one of the main dilemmas faced by the system during the s. Han also put forward some operational factors that led to the collapse of Bretton Woods system.
He argues that the uncooperative gold accumulation behavior of other countries caused the depreciation of USD. However, this viewpoint has deficits and can be explained by other factors.
US has accumulated huge war debt that would lead to inflation and depreciation of USD as a result of the US government kept printing money. Besides, the game theory Dominguez, [5] can also account for the depreciation of USD. However, this argument can also be undermined by two structural defects.
For another, the pegging system was flawed. Since other countries had to peg their currency to the USD, capital mobility was reduced. The Bretton Woods system may have failed structurally due to conflicting sovereign goals.
In fact, Gardner , p. However, this miraculous establishment finally ended owing to problems resulting from the divergent objectives of America and Britain.
In other words, Britain favored bilateral trading with the US since it was an effective way of recovering its economy that has been damaged by joining the war. The US, on the other hand, intended to establish multilateral trade as a means of expanding its thriving economy and helping other European countries to reform their economies.
To put it another way, full employment, the goal of Britain, can lead to inflation. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. The roughly three decades that coincided with the monetary arrangements of the Bretton Woods system is often thought of as a time of relative stability, order, and discipline.
Yet considering that it took nearly 15 years following the conference at Bretton Woods before the system was fully operational and that there were signs of instability throughout the era, perhaps not enough has been made of the relative difficulty in trying to maintain the system.
Rather than seeing Bretton Woods as a period characterized by stability, it's more accurate to consider it as being a transitional stage that ushered in a new international monetary order that we're still living with today. In July , delegates from 44 Allied nations gathered at a mountain resort in Bretton Woods, NH, to discuss a new international monetary order.
The hope was to create a system to facilitate international trade while protecting the autonomous policy goals of individual nations. It was meant to be a superior alternative to the interwar monetary order that arguably led to both the Great Depression and World War II. Discussions were largely dominated by the interests of the two great economic superpowers of the time, the United States and Britain. But these two countries were far from united in their interests, with Britain emerging from the war as a major debtor nation and the U.
Wanting to open the world market to its exports, the U. Britain, represented by John Maynard Keynes and wanting the freedom to pursue autonomous policy goals, pushed for greater exchange rate flexibility in order to ameliorate balance of payments issues. A compromise of fixed-but-adjustable rates was finally settled upon. Member nations would peg their currencies to the U. Further provisions of the Articles stipulated that current account restrictions would be lifted while capital controls were allowed, in order to avoid destabilizing capital flows.
Further, there was no definitive timeline for implementing the new rules, so it would be close to 15 years before the Bretton Woods system was actually in full operation.
By this time, the system was already showing signs of instability. While the U. Germany then suggested, unsuccessfully, to its European colleagues that their currencies should be allowed to float jointly in relation to the dollar. The monetary crisis reached its nadir when US President Richard Nixon caused the collapse of the Bretton Woods System by officially suspending the dollar's convertibility to gold on 15 August Four days later, the three Benelux countries decided to retain the former range of fluctuation between their currencies and the dollar.
0コメント