The revived Bretton Woods system

TLDR

The rise of a fixed‑exchange‑rate periphery in Asia has restored the U.S. as the centre of the Bretton Woods system. The paper argues that the international monetary system naturally evolves when a periphery adopts export‑led growth with undervalued rates, capital controls, and reserve accumulation against the centre. Financial liberalization necessitates floating exchange rates among centre countries. Successful export‑led growth lets the periphery become the centre, and a cohort of countries is poised to follow, sustaining the system long‑term.

Abstract

Abstract The economic emergence of a fixed exchange rate periphery in Asia has re‐established the United States as the centre country in the Bretton Woods international monetary system. We argue that the normal evolution of the international monetary system involves the emergence of a periphery for which the development strategy is export‐led growth supported by undervalued exchange rates, capital controls and official capital outflows in the form of accumulation of reserve asset claims on the centre country. The success of this strategy in fostering economic growth allows the periphery to graduate to the centre. Financial liberalization, in turn, requires floating exchange rates among the centre countries. But there is a line of countries waiting to follow the Europe of the 1950s/60s and Asia today, sufficient to keep the system intact for the foreseeable future. Copyright © 2004 John Wiley & Sons, Ltd.