When It Comes To Money, We Need A Common Discipline

What is Bretton Woods? A fixed exchange system? Yes A gold exchange standard? Yes However, more importantly, the agreement that took place in 1944 was a framework of economic cooperation to promote international stability.

The great merit of Bretton Woods is to subject the member nations to a common discipline. Countries cannot, under that regime, choose to be economical, to expand their borrowing for no reason. In fact, devaluations ?? which is the result of such lax policies ?? is under the control and condition of the International Monetary Fund, naturally created by Bretton Woods.

The system banned the repeated devaluations that weakened international relations in the 1930s and contributed to the second world war. The Bretton Woods system collapsed in 1971, when the United States got caught up in ?? Triffin dilemma ?? ?? named for economist Robert Triffin, who wrote about the suffering of a country whose money has become a reserve currency.

The United States committed massive borrowing to finance, at the same time, the state of welfare and the war in Vietnam that the renewal of the dollar into gold became questionable: too much debt denominated for an insufficient and dwindling stock of gold. Therefore the innovation of gold was abandoned.

What has happened since the Bretton Woods system collapsed on August 15, 1971? At first, a sense of relief. Finally, the barrier of a fixed exchange rate system has disappeared. Countries can, from now on, regain their freedom to run their policy mix as they wish. Capital movements are freed up, economic policies are freed up, and markets can solve any remaining exchange rate problems.

Most economists, at the time, thought that this new floating system was far superior to the first. However, in fact, the new paradigm is, in no way, a fix ?? system ??:

  • It’s not a ?? pure floating ?? system because member countries are free to administer ?? their exchange rate and meddle in the market to maintain their competitiveness and avoid ?? if their current account is in excess ?? an appreciation of their money;
  • It does not include any kind of organized international cooperation in terms of macroeconomics and exchange rate discipline;
  • Allowed ?? at pinasigla pa ?? financial stability and unlimited borrowing and it urges governments to postpone structural reforms.

This is perhaps the most disturbing consequence of the death of Bretton Woods ?? that countries are free to expand their budget spending, because deep and innovative capital markets are able to manage such fiscal slippages.

No doubt the end of Bretton Woods ’discipline gave way financially ?? phenomena that have occupied our world over the last four decades.

So the whole world welcomed the collapse of Bretton Woods as a “liberation. ?? However, in reality, the world is not free.It has become more and more dependent on the financial markets that are now the financier and decision maker of our system.

Cycles are now determined by monetary impulses provided by several important central banks and depend on the reactions of capital markets to monetary policy. In this environment it seems reasonable to assess the validity of money impulses and evaluate their possible consequences on financial stability.

Is there any kind of such an international framework? The answer is no. ?? Is it disturbing? The answer is, as I see it, ?? oo. ??

In fact when real interest rates have been kept negative for decades, if global debt reaches a record three times the world’s GDP, when asset bubbles have spread, if the real The notion of stable money has disappeared from the computer screens of our central bankers, there are good reasons to worry.

Without going into the restoration of a new fixed exchange rate system, one says that it is important to reach at least a minimum of international understanding and cooperation in these matters. Does it make sense to turn a blind eye to:

  • the risks of trade war and protectionism associated with exchange rate practices and monetary policies (miscalculation);
  • the fact that the balance of payments adjustment falls exclusively to the poor debtors and never to overly structured countries,
  • the destabilizing consequences of our ?? no system, ?? which does not even consider the issue of giving the world an adequate amount of liquidity?

The answer, to me, is ?? hindi, ?? it does not make sense. Such a pleasant neglect is fraught with the dangers of repeated crises and instability.

All very few economists pay enough attention to the above ?? important ?? issues. One economist who seems to have broken the silence is Judy Shelton, and her thoughtful perspective should be sought and discussed. It’s also time, for others, and not just in the United States, to pick up on this issue before it’s all too late.


Mr. de Larosière, a former manager of the International Monetary Fund, is president of the Bank of France. Photo: Detail from a photograph by the author and chairman of the United States Federal Reserve, Paul Volcker. Courtesy of the author.


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