Orderly Change

Orderly Change: International Monetary Relations since Bretton Woods

Edited by David M. Andrews
Copyright Date: 2008
Edition: 1
Published by: Cornell University Press
Pages: 264
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  • Book Info
    Orderly Change
    Book Description:

    The Bretton Woods Conference of 1944 resulted in the formation of the International Monetary Fund and World Bank and helped lay the foundation for an unprecedented expansion of international commerce. Yet six decades later, at the beginning of the twenty-first century, the central characteristics of the Bretton Woods system remain disputed-and the subject of continuing public policy debate.

    Relying on extensive access to IMF, World Bank, and other archives, the contributors to Orderly Change show that the history of international monetary relations since Bretton Woods is one of "orderly change"-that is, change within a sturdy but supple framework. Even during the years of fixed exchange rates, very different practices characterized international monetary relations immediately after World War II, during the 1950s, and during the 1960s. Later, when the fixed exchange-rate system collapsed, underlying commitments to trade liberalization in the context of continuing national economic policy autonomy survived and even flourished. However, the resulting international economic order is now in grave danger: the tension between states' autonomy and their mutual openness has become acute, as international monetary structures no longer appear capable of mediating between these objectives. David M. Andrews and the contributors to Orderly Change examine past transitions as a means of suggesting possible avenues for current and future policymaking.

    eISBN: 978-0-8014-5831-6
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Contributors
    (pp. ix-x)
  4. Acknowledgments
    (pp. xi-xiv)
  5. Introduction
    (pp. 1-5)

    Few readers of this volume will require convincing of the significance of the Bretton Woods conference of July 1944. Yet bold statements about Bretton Woods, and especially about what eventually became known as the Bretton Woods system, are difficult to sustain. All history is complex, and broad generalizations about almost any topic are subject to exceptions; yet generalizing about the Bretton Woods system is particularly challenging. Why? Because the closer one looks the more difficult it becomes to identify the essential characteristics of this putative system.¹

    Emblematic of this difficulty are disagreements about when Bretton Woods ceased to function. Was...

  6. Chapter 1 Bretton Woods: System and Order
    (pp. 6-24)
    David M. Andrews

    July 1944 was an epochal moment in modern economic history. Following the calamities of a global depression and two world wars, the Bretton Woods conference of that month represented the best effort of its generation to provide for shared and lasting prosperity. The immediate aim of the gathering was to realize a durable institutional architecture for global monetary affairs, an architecture capable of facilitating a massive increase in international trade. It was to accomplish this aim while preserving the legal authority, and in fact enhancing the practical capacity, of nations to steer independent courses in their domestic economic policies. The...

  7. Chapter 2 Trade and Money in the Roosevelt Administration: Toward the Bretton Woods Agreement, 1933–1944
    (pp. 25-35)
    David M. Andrews

    Between the drafting of the Atlantic Charter in 1941 and the founding of the International Monetary Fund (IMF, or Fund) in 1946, the U.S. government spearheaded international efforts to create a trading system that was reasonably free and nondiscriminatory and a corresponding framework for monetary and financial collaboration intended to bolster those trade arrangements. It was trade, not money, that was the central preoccupation in Washington. Concerns about trade relations were rooted in the interwar experience and reflected debates about international economic policy within the administration of Franklin D. Roosevelt (or FDR); and although the free traders eventually won those...

  8. Chapter 3 Wartime Financial Diplomacy and the Transition to the Treasury System, 1939–1947
    (pp. 36-51)
    Anastasia Xenias

    In 1944, the United States held half of world gold reserves and was the only potential creditor for a plethora of war-ravaged potential borrowers desperate for cash. In the early years after the war, U.S. credit was not made available easily. After an initial period of very hard-line bargaining, however, U.S. financial policy then softened somewhat. The catalyst for this important change was the Cold War.

    The connection between the early history of the Bretton Woods system and the commencement of the Cold War is not widely appreciated. But George Kennan’s famous “long telegram” of February 22, 1946, was in...

  9. Chapter 4 International Liquidity Provision: The IMF and the World Bank in the Treasury and Marshall Systems, 1942–1957
    (pp. 52-77)
    Jeffrey M. Chwieroth

    Revisiting the early history of liquidity provision serves as a useful lens through which we can explore the early division of responsibilities between the International Monetary Fund (IMF, or Fund) and the International Bank for Reconstruction and Development (IBRD, or Bank). As I document here, both John Maynard Keynes and Harry Dexter White intended for the IBRD to be given explicit powers to help provide international liquidity.¹ In particular, Keynes and White envisioned the Bank as a provider of long-term stabilization loans and general-purpose balance-of-payments financing.² However, interagency rivalries within the U.S. government, as well as disagreements between U.S. government...

  10. Chapter 5 Ambiguous Aspects of Bretton Woods: Canadian Exchange-Rate Policy in the Marshall System, 1950–1962
    (pp. 78-99)
    Eric Helleiner

    Between 1950 and 1962, Canada was the only developed country to float its currency against the U.S. dollar, directly contravening commitments articulated in the International Monetary Fund (IMF, or Fund) Articles of Agreement. This experience has usually been relegated to a footnote in histories of the Bretton Woods system; Canada is generally portrayed as a relatively minor player, and the circumstances that encouraged its float are portrayed as unique. In this chapter, I suggest that the Canadian float has, in fact, much greater significance for our understanding of the postwar international economic order.

    The Canadian float was initiated during the...

  11. Chapter 6 Kennedy’s Gold Pledge and the Return of Central Bank Collaboration: The Origins of the Kennedy System, 1959–1962
    (pp. 100-119)
    David M. Andrews

    At the end of the 1950s and in the early 1960s, the mix of policies and procedures of the Marshall system was replaced by a new and very different modus operandi. In fact, the emerging system was in many ways the mirror-image of what preceded it: capital became more mobile, fixed exchange-rate schemes became more fragile, and national central banks asserted themselves as important policy actors. The origins of these changes, plus a sketch of the resulting arrangements, are the subject of this chapter.

    The revival of cooperation between national central banks played an important role in this process. During...

  12. Chapter 7 U.S. Payments Problems and the Kennedy Round of GATT Negotiations, 1961–1967
    (pp. 120-138)
    Lucia Coppolaro

    The U.S. dollar was under considerable pressure when John F. Kennedy entered the White House in January 1961 (see David Andrews, chap. 6 in this volume). Three successive years of large balance-of-payments deficits had resulted in heavy gold losses that threatened the strength of the dollar and, as a consequence, the stability of the entire international monetary system. Kennedy placed the blame for these difficulties on, among other things, overseas military commitments and capital outflows, both of which were mainly focused on western Europe. One of the first important tasks facing the Kennedy administration was therefore the adoption of measures...

  13. Chapter 8 Incomes Policies and the U.S. Commitment to Fixed Exchange Rates, 1953–1974
    (pp. 139-154)
    Wesley W. Widmaier

    It is sometimes forgotten that the era of full currency convertibility (1959–1971) began and ended with crises over wages and prices in the U.S. steel industry. In 1959, a 116-day U.S. steel strike led to the emergence of a trade deficit in steel, heightening concerns for the balance of payments. The Eisenhower administration viewed the strike as directly threatening the stability of not only the dollar but also the Bretton Woods arrangements themselves. Conversely, the August 15, 1971 decision to close the gold window followed closely on an August 1 wage settlement in which United States Steel committed to...

  14. Chapter 9 West German Monetary Policy and the Transition to Flexible Exchange Rates, 1969–1973
    (pp. 155-176)
    Hubert Zimmermann

    The Federal Republic of Germany (FRG) was one of the main pillars of the fixed-but-adjustable exchange rate system that, in its various forms, characterized monetary relations in the Western world after 1945.¹ During the 1960s, as the German currency (the deutschemark, or DM) was gaining strength amid increasing capital market deregulation, German monetary authorities went to great lengths to support this monetary regime and especially the dollar as it came under speculative pressure. However, beginning in 1969, the German government repeatedly took the decision—often despite the opposition of its international partners—to float the mark, signaling a willingness to...

  15. Chapter 10 Legal Foundations of the U.S. Dollar, 1933–1934 and 1971–1978
    (pp. 177-188)
    E. Richard Gold

    The history of international monetary relations is partly a story about governments responding to economic and political pressures and is typically told from this point of view. But it is also a story about the beliefs and practices of people actually using money. While trying to build an international monetary system, governments had to contend with the reality of how their citizens and corporations actually used money in private transactions. In order to ensure the sustainability of that system and to manage change within it, governments needed to align the expectations and behaviors of these private actors in particular ways;...

  16. Chapter 11 The Institutional Legacy of Bretton Woods: IMF Surveillance, 1973–2007
    (pp. 189-210)
    Louis W. Pauly

    The par value exchange-rate system designed in 1944 ended long ago, but the institutional legacy of Bretton Woods persists. That legacy can perhaps best be traced by examining the core mandate of the International Monetary Fund (IMF, or Fund) as embodied in its surveillance operations. The almost continual adaptation and renewal of this central function of the Fund reflects the conjunction of the principle of economic openness with the practice of pragmatic accommodation of enduring commitments to sovereign autonomy. From the beginning, political struggle shaped the development of the surveillance function; the resulting trajectory signaled a continuing attempt by the...

  17. Chapter 12 Future Prospects of the Bretton Woods Order
    (pp. 211-236)
    David M. Andrews

    In 1956, Richard Gardner published Sterling-Dollar Diplomacy, his magisterial study of the Anglo-American negotiations for the economic framework of the post-war world.¹ In it, Gardner examined in some detail the rationales and strategies of U.S. war time planners, especially with respect to the establishment of international organizations for the promotion and maintenance of multilateral commercial and financial collaboration.² His study focused on how bilateral negotiations with counterparts from the United Kingdom, then the chief economic partner of the United States, led to the creation of the International Monetary Fund (IMF) and the World Bank but not the establishment of an...

  18. Index
    (pp. 237-245)