History of the IMF: Organization, Policy, and Market PDF
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Studies in Economic History Kazuhiko Yago Yoshio Asai Masanao Itoh Editors History of the IMF Organization, Policy, and Market Studies in Economic History Series editor Tetsuji Okazaki , The University of Tokyo , Tokyo , Japan Editorial Board Members Loren Brandt, University of Toronto, Canada Myung Soo Cha, Yeungnam University, Korea Nicholas Crafts, University of Warwick, UK Claude Diebolt, University of Strasbourg, France Barry Eichengreen, University of California at Berkeley, USA Stanley Engerman, University of Rochester, USA Price Fishback, University of Arizona, USA Avner Greif, Stanford University, USA Tirthanker Roy, London School of Economics and Political Science, UK Osamu Saito, Hitotsubashi University, Japan Jochen Streb, University of Mannheim, Germany Nikolaus Wolf, Humboldt University, Germany Aim and Scopes This series from Springer provides a platform for works in economic history that truly integrate economics and history. 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More information about this series at h ttp://www.springer.com/series/13279 Kazuhiko Yago • Yoshio Asai • Masanao Itoh Editors History of the IMF Organization, Policy, and Market Editors Kazuhiko Yago Yoshio Asai School of Commerce Faculty of Economics Waseda University Seijo University Shinjuku-ku , Tokyo , Japan Setagaya-ku , Tokyo , Japan Masanao Itoh School of Social Information Studies Otsuma Women’s University Tama , Tokyo , Japan ISSN 2364-1797 ISSN 2364-1800 (electronic) Studies in Economic History ISBN 978-4-431-55350-2 ISBN 978-4-431-55351-9 (eBook) DOI 10.1007/978-4-431-55351-9 Library of Congress Control Number: 2015940572 Springer Tokyo Heidelberg New York Dordrecht London © Springer Japan 2015 T his work is subject to copyright. 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Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper Springer Japan KK is part of Springer Science+Business Media (www.springer.com) Preface: The IMF and the Postwa r International Financial Order This book aims to examine the foundation and evolution of the post-WWII interna- tional fi nancial order, focusing on the International Monetary Fund (hereafter IMF). The volume deals mainly with the period from the start of the IMF in 1947 until the beginning of the 1960s, when the institution fully exercised its functions. In order to demonstrate our basic standpoint, let us examine previous studies on selected topics regarding this subject. The Gold Standard and After: Was the Bretton Woods System an “Innovation”? An understanding of the classical international gold standard as well as the interwar gold exchange standard is indispensable in putting the postwar international fi nan- cial system in a larger historical context. Representative studies on the pre-WWI international gold standard describe it as a sort of global public good for peripheral countries, without any artifi cial structure (Bordo 1984; Kindleberger 1986). It was also a “Good Housekeeping Seal of Approval” for peripheral countries to access capital fl ows from the industrialized core regions (Bordo and Rockoff 1996). Following this view, offi cial international cooperation on money and exchange had been promoted only in a limited scope during the gold standard era: a debate between Barry Eichengreen and Marc Flandreau sharply revealed this point (Eichengreen 1995; Flandreau 1997). Why could this gold standard operate without a legal structure and formal collaboration? Historians often refer to a “silent rule” or “rules of the game” that unoffi cially regulated the gold standard regime, although a great variety of views are still left among historians as for function of this “rules of game” (Bordo 1984). During the interwar period, the move toward international collaboration on money and exchange emerged but stayed in a burgeoning stage: the Tripartite Monetary Agreement in 1936 took steps toward exchange stability v vi Preface: The IMF and the Postwar International Financial Order through international collaboration, but it could not bring about results through collaboration in the true sense of the word (Eichengreen 1992; Mouré 2002). I n contrast, the international monetary system founded by the Bretton Woods Conference during the late WWII period was, after Harold James, an “innovation” that emerged in the middle of the twentieth century, for the system involved a rule that could limit national sovereignty in exchange-rate and macroeconomic policies (James 1996, p. 9). The Bretton Woods Conference (offi cially the International Monetary and Financial Conference of the United and Associated Nations) was held in Bretton Woods, New Hampshire, the United States, 1–22 July 1944, with 44 participating countries. The Conference approved the fi nal statement as well as the Agreements of the IMF and the International Bank for Reconstruction and Development, known as the World Bank (hereafter WB). Both Agreements of these institutions went into effect on 27 December 1945. After the founding assemblies of both institutions in March 1946, the WB opened its doors on 25 June 1946 and the IMF on 1 March 1947. The Bretton Woods system thus was created both artifi cially and offi cially. H owever, the above-mentioned antagonism between the “silent rule” under the gold standard era and the “innovation” in the Bretton Woods System invokes, from our perspective, some questions: was the “silent rule” so automatically effective, and was the “innovation” such a new attempt? In fact, the “silent rule” for the par- ticipating countries in the gold standard system was not “silent” in the sense that central banks actively coordinated their bank rates in order to neutralize the negative effect of business cycle contagion (Toniolo 1988; Borio et al. 2008). The Bretton Woods System was also a product of diplomatic negotiation, often with obscure concessions (Steil 2013; Helleiner 2014) . It is therefore hard to distinguish these systems, gold standard as an automatic market-based one and the Bretton Woods system as a legal-based one. Our research in this volume attempts to cast doubt on the view of the Bretton Woods System as an “innovation” and to positively present an alternative historical view referring to a certain continuity in terms of the political character of the sys- tems, in between the prewar and the postwar international fi nancial orders. In the following chapters, we approach the rule-making process of the IMF from the view- point of international politics. In the IMF during the fi xed-rate era, the countries with surplus international balances were privileged, while defi cit countries were sanctioned, and socialist countries were kept aside. This system, however, was not set up this way from the beginning: the rules on lending and the Article 14 consulta- tion had been elaborated upon through a struggle among member countries. This is why we focus on politics in the rule-setting phase during the 1950s, in which period the institutional framework of the IMF was set up. Bretton Woods, System or Order? A n article by Michael Bordo, which represents a commonly accepted view on the Bretton Woods monetary system, asks “why Bretton Woods was statistically so stable and why it was short lived?” (Bordo 1993, p. 4). In fact, the IMF had 12 years Preface: The IMF and the Postwar International Financial Order vii of preparation before beginning to function fully and less than 10 years of heyday from 1959 to 1967. The answer according to Bordo was that the weakness of the Bretton Woods System was due to the system’s having been built by combining the gold exchange standard on the one hand and the adjustable peg system on the other. The system depended solely on the United States and thus when the United States gave up its price stability policy in late 1960s, the system was led to collapse. The above interpretation of the Bretton Woods System by Bordo stands on the presup- position that the core of the System had been a fi xed-rate system. C ontrary to above conventional views, international political economist David Andrews recently proposed the notion of the “Bretton Woods Order”. Andrews made a distinction between the Bretton Woods System as an offi cially established international monetary system and the Bretton Woods O rder as an unoffi cial inter- national economic order: according to his thesis the Bretton Woods System col- lapsed but the Bretton Woods Order is still evolving until the present (Andrews 2008). The system built by the Bretton Woods Conference was, according to Andrews, an economic order seeking two goals at once: domestic economic policy and international trade development. Thus the objectives of the Bretton Woods Order stayed unchanged after the end of the Bretton Woods System as a monetary system (i.e., a fi xed-rate system). In fact, he says, trade liberalization is still ongo- ing, without a thorough return to protectionism. A ndrew’s view is inspired by the “embedded liberalism” thesis of John Ruggie (1982). This Ruggie theory, infl uential among international political scientists, describes post-WWII liberalism as a product of compromise between economic nationalism and multilateral economic liberalism, the latter totally different from the nineteenth-century liberalism. The interwar period gold standard collapsed, according to Ruggie, not because of the absence of a hegemon country but due to the leading states’ lack of power to coordinate market forces to respond to social requirements. However, with agreement on the Atlantic Charter in 1941, two goals, namely, multilateralism for free trade on the one hand and domestic economic development with social insurance on the other, have been combined, to be incar- nated in the Bretton Woods Agreement as well as the General Agreement on Tariffs and Trade (hereafter GATT). Even after the suspension of gold–dollar exchange in 1971, free trade is still developing. Moreover, Ruggie says, the fl exible rate system has been introduced in order to avoid the contradiction between international mac- roeconomic policy and the international monetary system per se, which indicates the continuity of the double political goals of the Bretton Woods System. Ruggie’s views has been echoed recently by Abdelal, who stresses European leadership in capital movement liberalization, as an example of the Ruggie thesis (Abdelal 2007). T his book shares the view of Ruggie and Andrews regarding historical continuity before and after introduction of the fl oating system in the early 1970s; however, the approach differs: our book pays special attention to the evolution of the international monetary system as an international public good, and above all the role played by the IMF. In our hypothesis, the IMF and the international market have not been “embedded” in a social order in Ruggie’s sense; they had their own logic of evolu- tion, infl uenced by economic and monetary conditions, at home as well as overseas. viii Preface: The IMF and the Postwar International Financial Order The Bretton Woods System and National Economies During the late half of the nineteenth century, the European and American nation states were establishing their proper domestic currency systems, and this domestic process went along with the formation of an international system of settlements based on the gold standard (Helleiner 2003). This means that, as recent historical studies have made clear, the international gold standard had been supported by the development of domestic currency systems, not by the gold bullion itself. As Robert Triffi n stated, “the nineteenth century could be far more accurately described as the century of an emerging and growing credit-money standard, and of the euthanasia of gold and silver moneys, rather than as the century of the gold standard” (Triffi n 1968, p. 21). In Japan as well, concessional trade during the late Tokugawa Shogunate and the early Meiji period had been settled by silver, but this was replaced soon after by the settlement by exchange bills following the establishment of the Yokohama Specie Bank. Finally the Japanese currency system was integrated into the international gold standard in 1897, along with the elaboration of the domestic currency system with the foundation of the Bank of Japan (1882) and the Convertible Bank Note Act (1884) (Ishii 1994). C ompared to the above achievements in fi nancial history during the gold stan- dard era, the relations between the international system and national economies in the Bretton Woods period still remain unclear. Was the international system stipu- lated in the Bretton Woods Agreement so powerful in shaping the postwar national economies, at least in the industrialized West? Did the postwar international fi nan- cial system support the unprecedented growth of the capitalist world, or did the growth itself make the international system sustainable? Our study tries to answer these questions, focusing mainly on the tension in the rounds on exchange restric- tions and lending between the IMF and member countries. It is also worth noting that before 1950 the only surplus country was essentially the United States, but in 1960 the situation totally changed with the US recording overall defi cits of interna- tional accounts: the book also deals with the redefi ning of the system under the above changes that took place in the national economies. Together with the above approach to the national economies, we pay special attention to the relation of the IMF with the markets. The counterparts for the IMF’s operations being the member countries’ exchange agencies, the Fund did not have offi cial contact with the markets. Nevertheless, the IMF had to watch the move- ments of the markets carefully: The IMF’s commitment to the pound sterling during the 1940s and the 1950s as well as the approval of the European Payments Union as opposed to the original ideal of the IMF were products of the Fund’s recognition of the realities of the markets selecting their proper currencies of settlement. Moreover, as Chap. 6 explains, the IMF examined the use of international short-term capital markets to cope with the international liquidity problem. The above “market- oriented” aspect of the IMF is one of the major fi ndings of this volume, as a critique of the Ruggie–Andrews thesis that treats the IMF mainly from the “embedded” social context, ignoring market conditions and constraints. Preface: The IMF and the Postwar International Financial Order ix The IMF as One of the Actors, but an Independent One Finally, we try to provide an answer to the following question: Whose role was the most decisive in the working of the Bretton Woods System: the IMF, the United States, or someone else? Our hypothesis is that the postwar international fi nancial system was an amalgam produced by several actors, in which no participants could maintain their hegemony over the system. In order to approach this issue, our book places the role of the IMF in relation to the international monetary and the fi nancial system as a whole, i.e. with other institutions and treaties. Although the IMF has been the central focus of the post-WWII international monetary system, the position of the IMF has changed from its foundation to the present: although the IMF was a main actor of the fi xed-rate system, it was not even a supporting actor during the Marshall Plan period, and after the mid-1960s its initiative has been taken over by the G10. From our point of view, the work on the IMF by Harold James, a quasi- offi cial history of the institution, could be criticized for describing the IMF as the main actor in the system at all times (James 1996). Contrary to this “IMF-centrism,” recent historical studies on the Bank for International Settlements are trying to introduce an alternative view (Toniolo 2005; Yago 2013). Of course, all the “offi - cial” IMF histories, from Horsefi eld (1969) to De Vries (1986), and above all James (1996) and Boughton (2001) were very useful for our research, leading us to insight- ful topics. Our approach, however, differs from those offi cial historians in putting the IMF in the midst of plural powers and interests, often from the points of view of member countries. In light of the above current of studies, this book approaches the IMF from multiple hypotheses to critique such an “IMF-centric” history. Although very important, the IMF was just o ne of the actors in the postwar international fi nancial order. O n the other hand, we pay attention to the autonomous character of the IMF as an institution. The fact that the United States maintains its veto over important deci- sion making in the IMF often leads to an image that the US could drive this institu- tion freely, a view that of course is backed by some solid evidence. However, once established, the IMF as an institution generated its own interests and logic in poli- cymaking, and the staff headed by the Managing Director represented those i nterests and logic. The US Government, on the other hand, did not represent one single interest: inside the government were plural antagonisms, between the Department of State and the Department of the Treasury, and even within the Treasury. We must also keep in mind the relation between the US Government and the Congress (Lavelle 2011). The American veto over IMF decisions, therefore, did not mean the dependence of the IMF on the US Government. Moreover, for the United States, the IMF was not the only gateway to the international fi nancial arena. In this context, the work of Jeffrey Chwieroth, which pointed out an organizational change “from within” the IMF, has inspired our approach (Chwieroth 2010). After all, the IMF must be regarded as an i ndependent actor .
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