Andrew Walter (London - Dec 2010)

Global imbalances – lessons from Bretton

Woods?

Andrew Walter, LSE

Global imbalances during & after the Bretton Woods period

• Much smaller during the BW era• US external & internal imbalances

modest• Serious deterioration in the post-BW

era

Current account balances, % world GDP, 1970-2009

Source: World Bank, WDI

US imbalances & inflation, 1960-2009

Source: Economic Report of the President database.

US net savings by sector, 1946-2009, % GDP

-10%

-5%

0%

5%

10%

15%

1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006% GDP

Net government saving Households and institutions Domestic business

Source: US Bureau of Economic Analysis

US personal consumption and saving, 1946-2009, % GDP

56%

58%

60%

62%

64%

66%

68%

70%

72%

1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

% G

DP

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Personal consumption (lhs)Personal saving (rhs)

Source: US Bureau of Economic Analysis

So did the BW rules constrain global imbalances?

• Only indirectly: pegged exchange rates, capital controls, & financial repression– Large imbalances & liberalized finance (gold standard,

1970s+)

• BW surveillance / policy coordination process acrimonious– Bilateral & multilateral process: few notable policy

adjustments– Weakened IMF surveillance (G10 & OECD WP3)– These negotiations were between Cold War allies!– Unilateral US demands for concessions by surplus

countries

• The BW surveillance rules & process still largely intact, even strengthened from 1977

Modest exchange rate adjustments

major currencies vs. US$ 1955-1973 (3 Jan 1960=100)

80

100

120

140

160

180

200

3/1

/19

55

06

/22

/19

55

9/1

2/1

95

5

05

/28

/19

56

11

/14

/19

56

4/5

/19

57

10

/22

/19

57

04

/16

/19

58

10

/10

/19

58

04

/13

/19

59

10

/13

/19

59

12

/4/1

96

0

10

/14

/19

60

04

/20

/19

61

10

/30

/19

61

04

/19

/19

62

12

/10

/19

62

04

/19

/19

63

7/1

0/1

96

3

03

/25

/19

64

11

/9/1

96

4

1/3

/19

65

08

/18

/19

65

4/2

/19

66

07

/25

/19

66

11

/1/1

96

7

06

/30

/19

67

12

/18

/19

67

06

/13

/19

68

5/1

2/1

96

8

2/6

/19

69

11

/29

/19

69

05

/25

/19

70

11

/19

/19

70

10

/6/1

97

1

01

/18

/19

72

08

/14

/19

72

03

/19

/19

73

10

/15

/19

73

Francs/$DM/$£/$

Reflected lack of agreement on two ‘Keynesian’ adjustment

principles1. Symmetric adjustment responsibilities

between surplus & deficit countries• Deflationary bias of the gold standard (Keynes: fines

on persistent surplus countries)

2. Special responsibilities for the main reserve centre countries

• Britain unwilling to generalize this principle – wanted specific US concessions (e.g. scarce currency clause)

• Marshall Aid era:– US the best surplus country & reserve centre

ever?– But motivated by Cold War objectives &

bypassed BW institutions

Lessons from, or legacy of BW?

• The BWS didn’t produce any lasting agreement on adjustment responsibilities

• US position & policies problematic– Unilateralism & minilateralism undermines IMF

surveillance – Refusal of special reserve centre responsibilities

• So too that of major surplus countries– Reject first adjustment principle, demand special

responsibilities for reserve centres• What explains these failures?

– Domestic political constraints on all policymakers– Power asymmetries favouring US, Germany, France– Limited acceptance of Keynesianism in Germany? (Hall et

al.)• We’re still living with the consequences