The Gold Exchange Standard and beyond

Yalta was more than just the political division of the world 1943

Bretton Woods, NH

Bretton Woods: 1944 The Gold Exchange Standard is born

Bretton Woods : 1944 IMF and the IBRD: promote balanced growth and avoid currency wars The US$ becomes the central reserve currency The US$ becomes the only currency convertible in gold. 1 oz. gold = US$35 All other major currencies convertible in US$ at fixed rates (+/- 1.25%) All countries must run balanced accounts, devaluation allowed only to correct "structural imbalances” Ordinary drawings allowed to correct for temporary imbalances

Bretton Woods reflects the balance of power at the end of WWII In 1945, the US accounted for over 50% of the: world industrial output international trade world stock of monetary gold

The Gold Exchange Standard ( ) The Shortage of US$ ( ) The Decline of the GES ( ) The Demise of the GES (after 1971)

The Shortage of US$ ( ): A summary The only source of US$ was the US trade deficit (Rueff's deficit without tears, Triffin's paradox) Major Western European currencies become convertible in US$ in 1958 The Interest Equalization Tax and the Foreign Credit Restraint Program control the supply of US$ The rise of Eurodollar

JFK wants a stronger America He is weary of expansionist monetary policies

November 1963: LBJ is sworn in He wants to have the cake and eat it too

LBJ’s approach Wage war in Vietnam Increase social spending: The Great Society

Where is the money coming from? Just print more

The French government converts all its dollars US gold reserves dwindle dramatically The stability of the GES is seriously threatened

The Decline of the GES ( ): A summary The Vietnam War and LBJ's Great Society (Medicare, Medicaid, food stamps, welfare payments, etc) US expansionist monetary policy Relative decline of US international position Decline of US stock of monetary gold (in the late 60s the French government converted all its US$ into gold) Special Drawing Rights are created to enhance international liquidity ("watering the lawn under heavy rain," "surrealism in the monetary system," etc.)

The Demise of the GES and beyond Aug. 1971: Nixon suspends US$ convertibility Dec. 1971: US$ devalued to $38/oz June 1972: British pound allowed to float Jan 1973: Swiss franc allowed to float Feb 1973: US$ devalued to $42.22/oz March 1973: all major currencies float:the European Snake : OPEC oil embargo March 1979: EMS created Aug. 1982: Latin American debt crisis Feb-Sept. 1985: US$ peaks & Plazza Accord 1989: End of communism in Eastern Europe Dec 1991: The Maastricht Treaty: plans for the EMU Sept 1992: EMS crisis: high German interest rates, the ITL and £ quit the EMS July 1993: Major EMS realignment 1998: The C$ sinks to record levels Jan. 1999: The Euro