Download A Retrospective on the Bretton Woods system by Michael D. Bordo, Barry Eichengreen PDF

By Michael D. Bordo, Barry Eichengreen

At the shut of the second one international struggle, while industrialized countries confronted severe exchange and fiscal imbalances, delegates from forty-four international locations met in Bretton Woods, New Hampshire, which will reconstruct the overseas financial method. during this quantity, 3 generations of students and coverage makers, a few of whom participated within the 1944 convention, ponder how the Bretton Woods method contributed to remarkable monetary balance and swift development for 25 years and speak about the issues that plagued the process and resulted in its eventual cave in in 1971. The participants discover adjustment, liquidity, and transmission lower than the method; how it affected constructing international locations; and the position of the overseas financial Fund in preserving a good cost. The authors research the explanations for the System's good fortune and eventual cave in, examine it to next financial regimes, akin to the eu financial method, and handle the potential of a brand new fastened alternate cost for modern-day international.

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While the Thais were unhappy with the US’s absence from the bilateral lenders, the size of the package was fine with them, as it was considered to be large enough to restore confidence. But things did not quite work out that way initially. Going public with the true reserve data at the same time as the IMF credit was announced proved to be problematic. Markets reacted violently, pushing the baht to new lows. There was poor adherence to the IMF program in the months following its adoption, and markets became concerned that the Thai government was not serious about implementing the program.

Asking what explained East Asia’s success, the authors concluded that high domestic investment by the private sector and rapidly growing human capital were the main factors. High investment was supported by high levels of domestic financial savings. indd 25 7/15/2011 7:18:45 PM Fighting Financial Fires the banking system. While the World Bank team’s extensive study provided clear and convincing explanations of the Asian miracle, it did not address the potential risks that could be encountered in the future by rapidly growing economies.

Debtor moral hazard would be mitigated by ensuring that the IMF policy conditions were strong, discouraging debtor countries from making this their preferred exit strategy. This and other ideas were discussed in the IMF Board, but did not lead to any firm conclusions, although some elements were applied in dealing with subsequent crises. But the most important practical policy initiative that followed the Mexican crises turned out to be an increase in the IMF’s capital, usually referred to as quotas.

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