Eichengreen - Global Imbalances

Eichengreen - Global Imbalances - NBER WORKING PAPER SERIES...

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NBER WORKING PAPER SERIES GLOBAL IMBALANCES AND THE LESSONS OF BRETTON WOODS Barry Eichengreen Working Paper 10497 http://www.nber.org/papers/w10497 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 2004 The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research. ©2004 by Barry Eichengreen. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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Global Imbalances and the Lessons of Bretton Woods Barry Eichengreen NBER Working Paper No. 10497 May 2004 JEL No. F0, F3, N0 ABSTRACT An influential school of thought views the current international monetary and financial system as Bretton Woods reborn. Today, like 40 years ago, the international system is composed of a core, which has the exorbitant privilege of issuing the currency used as international reserves, and a periphery, which is committed to export-led growth based on the maintenance of an undervalued exchange rate. In the 1960s, the core was the United States and the periphery was Europe and Japan. Now, with the spread of globalization, there is a new periphery, Asia, but the same old core, the United States, with the same tendency to live beyond its means. This view suggests that the current pattern of international settlements can be maintained indefinitely. The United States can continue running current account deficits because the emerging markets of Asia and Latin America are happy to accumulate dollars. There is no reason why the dollar must fall, since there is no need for balance of payments adjustment; in particular, the Asian countries will resist the appreciation of their currencies against the greenback. I argue that this image of a new Bretton Woods System confuses the incentives that confronted individual countries under Bretton Woods with the incentives that confronted groups of countries. It imagines the existence of a cohesive bloc of countries called the periphery ready and able to act in their collective interest. I argue, to the contrary, that the countries of Asia constituting the new periphery are unlikely to be able to subordinate their individual interest to the collective interest. This image of the current system as Bretton Woods reborn also overlooks how the world has changed since the 1960s. This alternative reading of history and current circumstances suggests that even if there exists today something vaguely resembling the Bretton Woods System, it is not long for this world. Barry Eichengreen University of California, Berkeley Department of Economics 549 Evans Hall, #3880 Berkeley, CA 94720-3880 and NBER [email protected]
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1 Global Imbalances and the Lessons of Bretton Woods Barry Eichengreen University of California, Berkeley May 2004 1. Introduction An influential school of thought views the current international monetary and
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This note was uploaded on 09/25/2010 for the course ECO IntEco taught by Professor Andre during the Spring '06 term at UFRGS.

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Eichengreen - Global Imbalances - NBER WORKING PAPER SERIES...

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