Thursday, February 03, 2005

How to tell Bretton Woods from the Dollar Standard, part 1

This conference at the San Francisco Fed looks quite interesting. I wish I could go. As an aside, it strikes me that the group of people who say interesting things about the international monetary system is really quite small. The same names pop up over and over again. Why is it so difficult to be creative about this topic?

The conference begins with some very influential papers by Michael Dooley and others, who suggest that the current international monetary system is quite stable, because the Asian countries depend on cheap exchange rates for growth, so they will finance US current accounts infinitely (in market time, that is). This is like a revived Bretton Woods system, they say. This is, in my opinion, the best exposition of the view.

Barry Eichengreen has an interesting response. He says that Dooley and others are wrong in that they mistake the interests of individual countries with those of groups of countries. In the current system, cooperation is difficult because there is always an incentive to cheat. He also says that Dooley and others are confusing the Bretton Woods system with the dollar standard. The distinction between the two is something that I plan to explore more carefully in future posts.

Maurice Obstfeld presents The Unsustainable Current Account Position Revisited, on which I've commented in an earlier post.

Nouriel Roubini tells us that the end of the world is near, surprise, surprise. Well, if the international monetary system is really as unstable as Roubini suggests, I'm sure glad most countries have flexible exchange rates.

By far, I think the most interesting paper is Ronald Mckinnon's, and I plan to devote an entire post to its discussion. I also want to discuss Mckinnon's concept of conflicted virtue, kind of like Ricardo Haussmann's idea of original sin, except backward.

Tomorrow, that is.

p.s. I shouldn't neglect this paper just because I haven't read it.


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