Economists’ Initial Reactions to the Demise of the Bretton Woods System

Abstract

The international financial system as it is presently configured, including the international use of currencies, has evolved in a manner that no prominent economist predicted during or at the end of the Bretton Woods era (Solomon 1999; Endres 2005). Following the collapse of the Bretton Woods system some economists viewed the ensuing international financial arrangements either as fragile or precarious because they did not constitute a genuine, planned IFO. The resulting IFS was considered a ‘non-system’ (e.g. Williamson 1976). By the end of the period under review Robert Mundell (2000, p.339) was still referring to the existence of a non-system; the last quarter of the twentieth century had witnessed, in his view, the wholesale ‘destruction’ of any semblance of an IFS. Much earlier Max Corden (1983 and 1994, p.165) observed that there was indeed an IFS in existence post-1971 but it was ‘unplanned and uncoordinated’. By contrast, another distinguished commentator, James Tobin (1982, pp.115–16) likened the international financial arrangements in the 1970s to ‘monetary anarchy’. Ever since, a plethora of proposals have focused on producing a range of plans deliberately to redesign the international financial ‘architecture’ and avoid or remove supposed endemic features such as financial instability, speculative capital flows, and financial crises; they also discuss various provisions for an international lender of last resort (e.g. Tobin 1978; Bank for International Settlements 1998; Eichengreen 1999a; Fischer 1999a, 2003a and Isard 2005).