Bretton Woods

Bretton Woods - Bretton Woods : Operation and Failure...

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Bretton Woods : Operation and Failure November 23th 2011 The slide of the balance of payments adjustments : the line separating the domestic from intl, capital controls . the goal was to make move capital move beyond borders. The domestic and international are connecting in some way : using capital controls, but not everybody needed to do that. The US put capital out to deal with the liquidity shortage Inherent instabilities emerge : Others make currencies convertible beginning in 1958: takes them time to put the rules of the regime. U.S balance of payments changing in 1960s: the US imports more than exporting, balance of payments issues. The things shifted from too many dollars out there – too much liquidity . Dollar gut : not easily slowed When you have too many dollars out , ppl lose confidence : this is difficult to stop Turn the dollars off politically difficult : Dollar as numeraire of the system : original IMF plan , exchange rates are relatively fixed with a little bit of adjustments ( fluctuations) , if you are in trouble you can devaluate the currency. That was the intention : adjustment in exchange rates . first problem : one country goes and asks for this, no one wanted to admit it was his currency’s fault . what do you do when the US dollar is the source of the trouble : all the states accumulated dollars, as a reserve, how do you devaluate then relative to everybody else? If you reduce its value than everybody else has to devalue . They never thought about this problem before the 60s : Triffen Paradox , how do you adjust the value of one currency when is the backing for all the rest Speculators have one way bet : the speculators was simple to know when the prices were
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Bretton Woods - Bretton Woods : Operation and Failure...

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