The International Monetary System and the Call for a “new Bretton Woods” System

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The current international monetary system has evolved from previous economic experiences since the Bretton Woods regime and has change the financial system internationally (Truman, 2010). The Bretton Woods system lacked the flexibility of nominal exchange rates and was too costly. Nowadays it would be too difficult to peg exchange rates as nation-states are increasing capital mobility and developing independent monetary policies (Astrow, 2012). The United States deficits would reduce confidence in the value of the dollar and another reliable currency, like the yen, would need to be utilized in the “New Bretton Woods” system. However, other countries, aware of the past economic history, would not want to take on the responsibility of being the world’s key currency and risk being placed in a balance of payments deficit. The Bretton Woods system was supported by a belief that floating exchange rates damaged international trade and domestic prosperity. We must understand that imbalances can be limited, not completely balanced out, with the application of monetary and fiscal policies. The current international monetary system is not perfect and can always be improved. However, reverting back to the Bretton Woods system would not be the most feasible system over a long period of time.

References

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