Overview

Why the current Bretton Woods-like international financial system, featuring large current account deficits in the center country, the United States, and massive reserve accumulation by the periphery, is not sustainable. In Global Imbalances and the Lessons of Bretton Woods, Barry Eichengreen takes issue with the argument that today's international financial system is largely analogous to the Bretton Woods System of the period 1958 to 1973. Then, as now, it has been argued, the United States ran balance of payment deficits, provided international reserves to other countries, and acted as export market of last resort for the rest of the world. Then, as now, the story continues, other countries were reluctant to revalue their currencies for fear of seeing their export-led growth slow and suffering capital losses on their foreign reserves. Eichengreen argues in response that the power of historical analogy lies not just in finding parallels but in highlighting differences, and he finds important differences in the structure of the world economy today. Such differences, he concludes, mean that the current constellation of exchange rates and payments imbalances is unlikely to last as long as the original Bretton Woods System. Two of the most salient differences are the twin deficits and low savings rate of the United States, which do not augur well for the sustainability of the country's international position. Such differences, he concludes, mean that the current constellation of exchange rates and payments imbalances is unlikely to last as long as the original Bretton Woods System. After identifying these differences, Eichengreen looks in detail at the Gold Pool, the mechanism through which European central banks sought to support the dollar in the 1960s. He shows that the Pool was fragile and short lived, which does not bode well for collective efforts on the part of Asian central banks to restrain reserve diversification and support the dollar today. He studies Japan's exit from its dollar peg in 1971, drawing lessons for China's transition to greater exchange rate flexibility. And he considers the history of reserve currency competition, asking if it has lessons for whether the dollar is destined to lose its standing as preeminent international currency to the euro or even the Chinese renminbi.

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Eichengreen's book should be the starting point for the debate about what will happen after the inevitable end of an unsustainable system. With this and his many other books, Eichengreen has established himself as one of the most important voices in that debate. Rawi Abdelal Business History Review

<p> Eichengreen's book should be the starting point for the debate aboutwhat will happen after the inevitable end of an unsustainable system. With this andhis many other books, Eichengreen has established himself as one of the mostimportant voices in that debate. Rawi Abdelal Business History Review

As the United States confronts a future that must grapple with the need to provide adequate health care, rebuild infrastructure, and fund retirement, including covering failed private pensions, this book provides a timely reminder of past successes and past failures at dealing with these issues. There is much to be learned from U.S. fiscal policy over the past sixty years if at least the more obvious mistakes are to be avoided. --Francesco Giavazzi, Bocconi University, Milan Eichengreen's book should be the starting point for the debate about what will happen after the inevitable end of an unsustainable system. With this and his many other books, Eichengreen has established himself as one of the most important voices in that debate. Rawi Abdelal Business History Review Barry Eichengreen's examination of international monetary history throws much light on current global imbalances and the serious problems they create for the United States. --Robert Solomon, guest scholar, Brookings Institution History is not what we can readily recall. It is what we must be made to remember before we draw facile analogies between past and present. In this remarkable book, Eichengreen shows why. The present international monetary system may resemble the earlier Bretton Woods system, but Eichengreen finds big differences and argues that the present system is not likely to endure. We may be closer to the end than to the beginning. --Peter B. Kenen, Senior Fellow in International Economics, Council on Foreign Relations, and Professor of Economics, Emeritus, Princeton University Anyone interested in learning how a developing country might fare in eliminating exchange controls and floating its currency would benefit from studying Eichengreen's book. Much richer than its title suggests, it should be required reading for those interested not only in the history of international monetary arrangements but in their future as well. --Francesco Giavazzi, Bocconi University, Milan

Eichengreen's book should be the starting point for the debate about what will happen after the inevitable end of an unsustainable system. With this and his many other books, Eichengreen has established himself as one of the most important voices in that debate. —Rawi Abdelal Business History Review

Author Information

Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley. He is the author of Capital Flows and Crises (MIT Press, 2002) and other books. Merritt Roe Smith is Cutten Professor of the History of Technology at MIT and the author or editor of six books, most recently Inventing America: A History of the United States.

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