Global Imbalances and the Lessons of Bretton Woods

by Barry Eichengreen

Why the current Bretton Woods-like international financial system, featuring large current account deficits in the center country, the United States, and massive reserve accumulation by the periphery, is not sustainable. In Global Imbalances and the Lessons of Bretton Woods , Barry Eichengreen takes issue with the argument that today's international financial system is largely analogous to the Bretton Woods System of the period 1958 to 1973. Then, as now, it has been argued, the United States ran balance of payment deficits, provided international reserves to other countries, and acted as export market of last resort for the rest of the world. Then, as now, the story continues, other countries were reluctant to revalue their currencies for fear of seeing their export-led growth slow and suffering capital losses on their foreign reserves. Eichengreen argues in response that the power of historical analogy lies not just in finding parallels but in highlighting differences, and he finds important differences in the structure of the world economy today. Such differences, he concludes, mean that the current constellation of exchange rates and payments imbalances is unlikely to last as long as the original Bretton Woods System. Two of the most salient differences are the twin deficits and low savings rate of the United States, which do not augur well for the sustainability of the country's international position. Such differences, he concludes, mean that the current constellation of exchange rates and payments imbalances is unlikely to last as long as the original Bretton Woods System. After identifying these differences, Eichengreen looks in detail at the Gold Pool, the mechanism through which European central banks sought to support the dollar in the 1960s. He shows that the Pool was fragile and short lived, which does not bode well for collective efforts on the part of Asian central banks to restrain reserve diversification and support the dollar today. He studies Japan's exit from its dollar peg in 1971, drawing lessons for China's transition to greater exchange rate flexibility. And he considers the history of reserve currency competition, asking if it has lessons for whether the dollar is destined to lose its standing as preeminent international currency to the euro or even the Chinese renminbi.

Genres: Economics, Nonfiction, Money

205 pages, Paperback

First published January 1, 2006

About the author

Barry Eichengreen* is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987. He is a Research Associate of the National Bureau of Economic Research (Cambridge, Massachusetts) and Research Fellow of the Centre for Economic Policy Research (London, England). In 1997-98 he was Senior Policy Advisor at the International Monetary Fund. He is a fellow of the American Academy of Arts and Sciences (class of 1997).

Professor Eichengreen is the convener of the Bellagio Group of academics and economic officials and chair of the Academic Advisory Committee of the Peterson Institute of International Economics. He has held Guggenheim and Fulbright Fellowships and has been a fellow of the Center for Advanced Study in the Behavioral Sciences (Palo Alto) and the Institute for Advanced Study (Berlin). He is a regular monthly columnist for Project Syndicate.

His most recent books are Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (January 2011)(shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award in 2011), Emerging Giants: China and India in the World Economy, co-edited with Poonam Gupta and Ranjiv Kumar (2010), Labor in the Era of Globalization, co-edited with Clair Brown and Michael Reich (2009), Institutions for Regionalism: Enhancing Asia's Economic Cooperation and Integration, coedited with Jong-Wha Lee (2009), and Fostering Monetary & Financial Cooperation in East Asia, co-edited with Duck-Koo Chung (2009). Other books include Globalizing Capital: A History of the International Monetary System, Second Edition (2008), The European Economy since 1945: Coordinated Capitalism and Beyond (updated paperback edition, 2008), Bond Markets in Latin America: On the Verge of a Big Bang?, co-edited with Eduardo Borensztein, Kevin Cowan, and Ugo Panizza (2008), and China, Asia, and the New World Economy, co-edited with Charles Wyplosz and Yung Chul Park (2008).

Professor Eichengreen was awarded the Economic History Association's Jonathan R.T. Hughes Prize for Excellence in Teaching in 2002 and the University of California at Berkeley Social Science Division's Distinguished Teaching Award in 2004. He is the recipient of a doctor honoris causa from the American University in Paris, and the 2010 recipient of the Schumpeter Prize from the International Schumpeter Society. He was named one of Foreign Policy Magazine 's 100 Leading Global Thinkers in 2011. He is Immediate Past President of the Economic History Association (2010-11 academic year).

* This is the biosketch available at his faculty page.

Reviews

[Ararat Gocmen · Rating 4 out of 5]

An interesting discussion of 20th-century international financial and trade history, with relevance for 21st-century debates (and that relevance recognized by the author, who is explicit about making his own historical analogies while criticizing others’). The use of time series methods in Chapter 3 made for a convincing descriptive analysis of Japan’s postwar trade history. Likewise, the discussion in Chapter 4 of the threat posed by large and persistent U.S. current account deficits to the U.S. dollar’s reserve-currency status was the most soberly pessimistic take about the long-term viability of that status that I’ve ever read.

[Robert · Rating 4 out of 5]

The global economy is hardly a new phenomenon; it can easily be traced to the 16th century, following Columbus, building on the European economy of the Renaissance. Despite, or perhaps because of, all that history it is hugely complicated to understand, as we are all finding out with the emergence of a new global recession. Eichengreen is one of a small band of international economists who have spent their careers trying to untangle some of the main threads and for modern-day economists that means starting with the United Nations international economic confererence at Bretton Woods in 1944, which created the World Bank and International Monetary Fund and the exchange rate and currency support scheme it created. It's all pretty arcane, and unsettling to realize how little control we have of the global economy, but without technicians like Eichengreen (there are maybe 200 of them in the world), the global economy would probably have run off the rails entirely decades ago.

[Leonardo Zepeda · Rating 5 out of 5]

uno delos mas claros y apasionantes relatos para entender el funcionamiento del sistema financiero internacional de la post-guerra, vigente todavía