Twenty Years After Fifty Years After Bretton Woods

241 Pages·2015·14.24 MB·English

bretton woods: the next 70 years
BRETTON WOODS
The Next 70 Years
prudential investment management is pleased to have supported this unique
effort to present this authoritative collection of recent essays on the international
monetary system. The impressive range of authors and their thoughts and ideas is
testament that the system offers important scope for adjustment and innovation. As
we commemorate the seminal events that led to the establishment of the International
Monetary Fund seven decades ago, we have the unique opportunity to think about the
role of and potential for the international monetary system over the next seventy years.
The performance and balanced development of international financial transactions
depends on a well-functioning international monetary system. Persistent large exter-
nal imbalances and repeated bouts of sharp financial flow reversals and exchange rate
volatility seem to suggest that more can be done to strengthen the system.
At Prudential, we share an immediate interest in a robust system to support orderly
financial intermediation and help channel credit and investments efficiently. In
particular, we share the view that the increasing financial integration of emerging
markets and the residual challenges for overcoming the global economic and financial
crisis require a fresh approach to assessing the changes needed to restore greater stability
and resilience in the international economy and help foster growth and employment
opportunities at home and abroad.
We would like to thank deeply the Reinventing Bretton Woods Committee for
this exceptional initiative and are equally most indebted to all the authors for their
outstanding contributions to this project.
David Hunt
CEO Prudential Investment Management
table of contents
Foreword
christine lagarde....................................................................................................................Xiii
Reinventing Bretton Woods at 20
marc uzan ...............................................................................................................................XV
Introduction
ousmène mandeng and marc uzan .......................................................................................XXi
Joshua aizenman
Living with the Post Bretton Woods Volatility: A Work in Progress ...............................................1
abdulrahman a. al hamidy
From Where Should We Start Reforming the International Financial Architecture? ......................7
ali babacan
Seven Decade-Young Bretton Woods System and Changing Global Dynamics: From the
Post-World War Era Toward a More Polyphonic World ...............................................................15
muhamad chatib basri
How Can the IMF Benefit Asian Economies? .............................................................................19
marek belka
International Monetary System: Challenges Ahead .....................................................................25
erik berglof
The Bretton Woods Institutions Reinventing Themselves ............................................................33
lorenzo bini smaghi
Rebalancing the International Financial System, 70 Years Later ...................................................39
Jerome booth
Avoiding Dollar Cold Turkey: Toward a Multi-Currency International Monetary System ............45
Viii bretton woods: the next 70 years table of contents iX
michael bordo and barry eichengreen eric helleiner
Twenty Years After Fifty Years After Bretton Woods ....................................................................51 Why Understanding the History of Bretton Woods Matters Today ............................................161
guillermo calVo harold James
Toward an Emerging Market Fund .............................................................................................63 The Bleak Future of the International Monetary Fund ...............................................................169
ana maría carrasquilla thomas J. Jordan
FLAR as a Key Organization Within the Global Financial Security Network: Toward a Multi-Currency International Monetary System .........................................................175
Coordinated Action Can Make a Difference in the Next Crisis ...................................................69
mikhail khazin
agustín carstens The Bretton Woods System: Beyond All Repair? ........................................................................181
Building a More Efficient and Resilient International Monetary System ......................................75
haruhiko kuroda
benoît cŒuré Challenge for the Japanese Yen ..................................................................................................187
Policy Coordination in a Multipolar World.................................................................................83
il houng lee
aleX cukierman Tri-Polar Cluster System: A Proposal .........................................................................................193
Will the Global Financial Crisis Have a Lasting Impact on the Position of Major
Currencies vis-à-vis the Renminbi? .............................................................................................93 daVid daokui li
China as a Shaper of the New Bretton Woods System ................................................................199
Jacob frenkel
Reflections on Reform of the International Monetary System .....................................................99 Justin yifu lin
P-Gold: A Proposal for a New International Monetary System ...................................................205
l. enrique garcia
Strengthening Lines of Defense to Prevent Future Financial Crises ............................................111 Jin liqun
Bretton Woods: The System and the Institutions .......................................................................211
ilan goldfaJn and irineu de carValho filho
Turtles Don’t Climb Trees: Lack of Floating Results from Global Failures ..................................117 ronald i. mckinnon
Bretton Woods Reconsidered: The Dollar Standard and the Role of China ................................217
ruslan grinberg
To Reform While Preserving the Spirit of Bretton Woods ..........................................................123 daniel mminele
Perspectives on the Global Financial Architecture and the Future of the International
már guðmundsson Monetary System .......................................................................................................................231
Global Provisions of Foreign Currency Liquidity .......................................................................129
kingsley chiedu moghalu
pablo e. guidotti and Jonathan c. hamilton Bretton Woods, the West and the Rest .......................................................................................239
Sovereign Debt Restructuring and the Global Financial Architecture .........................................135
takehiko nakao
sergei gurieV Reinventing Development Finance ............................................................................................247
The Political Economy of the (Non-)Emerging Reserve Currencies ............................................145
yoichi nemoto
andy haldane The International Monetary System and the Role and Challenges of Regional Financial
The IMF and the GPS ...............................................................................................................149 Safety Nets in Asia .....................................................................................................................253
koichi hamada bandid niJathaworn
Rehabilitating the Bretton Woods Regime .................................................................................155 Emerging Asia and Three Lessons from Global Financial Crises .................................................259
X bretton woods: the next 70 years table of contents Xi
ewald nowotny Jean-claude trichet
Bretton Woods @ 70: Regaining Control of the International Monetary System ........................265 Some New Questions on the International Monetary System Evolution.....................................373
José antonio ocampo tatiana ValoVaya
The Future of Global Currencies ................................................................................................271 The Present State of the International Monetary System ............................................................381
mohamed azmi omar Julio Velarde
Reform of the International Financial Architecture: A Discussion of the Bretton Woods Global Imbalances and Multilateral Coordination .....................................................................387
System as well as the Prevailing International Financial Architecture in the Light
of Islamic Finance ......................................................................................................................277 ignazio Visco
The International Monetary System After the Global Crisis .......................................................395
guillermo ortiz
Governance, Mandate and the Future of the IMF ......................................................................285 Boris Vujčić
International Monetary System: Recent Past, Present and Challenges Ahead ..............................401
pier carlo padoan
Global Imbalances, Growth and International Monetary Systems ..............................................291 hiroshi watanabe
Usability of US Dollars in the Market—Brief Comments ..........................................................409
martin parkinson
An International Monetary System for the 21st Century ............................................................297 aXel a. weber
Reconciling Price Stability with Financial Stability .....................................................................413
luiz a. pereira da silVa
A Stable Global and Local Financial System for the 21st Century: A View from the Tropics.......303 yu yongding
Prospect and Future of the International Monetary System ........................................................419
murilo portugal
70 Years Since Bretton Woods: Definitely Not Enough! .............................................................313
martin redrado
Toward a More Balanced Global Monetary System ....................................................................319
Annexes .....................................................................................................................................425
klaus regling
Reform of the International Monetary System: Lessons From the European Crisis .....................327 Essay Summaries
ousmène mandeng ...................................................................................................................427
eric santor and lawrence schembri
The Future of the IMS: The New “Holy Trinity” of External, Monetary, and Financial Stability ....335 About RBWC ............................................................................................................................447
Joseph e. stiglitz Acknowledgments .....................................................................................................................451
The Unfinished Task of Bretton Woods: Creating a Global Reserve System ................................343
bakhyt sultanoV
From Bretton Woods to a New Era of Multilateralism ...............................................................351
györgy surányi
Deleveraging with a Micro, Macro and Global Approach ...........................................................357
chalongphob sussangkarn
Designing Safety Nets for Volatile Capital Flows ........................................................................365
christine lagarde, managing director
international monetary fund
foreword
When delegates met at Bretton Woods in July 1944 to devise a post-World
War II economic system, the war was still far from over: just one month had
passed since D-Day, and hostilities were set to continue for another ten months in
Europe and for over a year in the Pacific. Yet, recalling the missed opportunities that
had followed the previous World War, the IMF’s founders understood that the focus
was now shifting from ending the war to securing the peace.
In support of this cause, the Bretton Woods delegates agreed on no less than a
new global financial system. That system was to be supported by the International
Monetary Fund, a new institution focused on macroeconomic stability which, com-
bined with economic growth, was seen as one of the best guarantors of peace.
From the beginning, the IMF was infused with the ability to adapt to a changing
world, while remaining true to its founders’ vision. This capacity for reinvention would
prove indispensable as the IMF dealt with many different challenges in the years that
followed, from post-World War II recovery to the collapse of the original Bretton
XiV bretton woods: the next 70 years
Woods system, regional crises in Latin America and East Asia, the fall of the Berlin
Wall, and the global financial and European crises in recent years.
The IMF will continue to adjust its policies in the coming years, as new experience
is gathered and gets absorbed into policy making. Important challenges to economic
and financial stability may no longer be restricted to specific country issues, but come
from global cross-currents that affect economies around the world in different mani-
festations. This includes excessive income inequality, the risks posed by climate change,
marc uzan, eXecutiVe director
and the vast under-representation of women in the global workforce, all of which could
reinVenting bretton woods committee
prevent economies from reaching their full potential.
While it is doubtful that any of these factors was envisaged at Bretton Woods, it is
clear that each is central to the IMF’s goal of promoting global economic stability. Sev-
enty years ago, multilateralism was the only way to prevent another Great Depression
and world war; today, it is the only means to successfully confront problems whose
reinventing bretton woods at 20
causes and effects have no respect for international borders. And for the IMF to remain
effective in fostering multilateralism, its governance structure must continue to adapt
to the world it serves.
I encourage you to read this collection of thought-provoking articles, which provide
an excellent contribution to develop this question further: how can the IMF adapt
while remaining faithful to the mandate envisioned in 1944? When, in february 1994, I decided to organize a conference in New York
City to celebrate the 50th anniversary of the Bretton Woods System, I had no
idea that this impulse was to be a first step in a twenty-year adventure that would lead
to the creation of an institution I would head for two decades and a raison d’être.
I write these brief reflections at a time when we face the paradoxical tendency
“for the world to grow further apart, even as it draws closer together,”1 making inter-
national economic cooperation more fragile than it has been since the end of the
Second World War.
Indeed, the period following World War II was an era of hegemonic stability during
which the US as the dominant power had the capacity to act unilaterally to stabilize
the European and Japanese economies and more generally to manage the international
financial system. The fourth quarter of the 20th century was an era of hegemonic co-
operation during which the US could no longer act unilaterally but could still take the
lead role in organizing collective action. The first quarter of the 21st century is proving
1. Christine Lagarde, Managing Director of the IMF, “A new multilateralism for the 21st century,” The Richard
Dimbleby Lecture, London (February 3, 2014), available at: http://www.imf.org/external/np/speeches/
2014/020314.htm (last accessed February 13, 2015).
XVi bretton woods: the next 70 years reinventing bretton woods at 20 XVii
to be an era of “non-hegemonic cooperation”2 during which preventing fragmentation, was important for the mission of the Reinventing Bretton Woods Committee because this
divergence, and a return to national lines is becoming increasingly challenging. group was all about the international financial architecture and most particularly about
At a time fraught with worry that the international financial architecture and all the preventing and resolving financial crises. The close to thirty seminars we have organized
underpinning institutions established after World War II risk becoming obsolete, the Rein- around the G20, and with the close involvement of succeeding G20 chairs, have resulted in
venting Bretton Woods Committee (RBWC) is needed more than ever. It is an imperative, our having an important network of influence with numerous policy makers. We have seen
a necessity, that we mobilize stakeholders from both emerging and major economies to many G20 deputies of the 1990s and early 21st century become Ministers and Governors.
examine the need for new forms of multilateral cooperation that will help prevent fragmen- We also quickly discovered that other countries that were not members of any
tation and stagnation of the global economy. It is equally important that we discuss how groupings also had an interest in engaging with the international financial community. A
best to diffuse the growing tensions between incumbents and rising powers. And, yes, we case in point was when Professor Bob Mundell suggested that we connect with a group of
must strive to create the foundations for a more stable international monetary system and experts from Kazakhstan who had established the Astana Economic Forum and were keen
sustainable growth. The RBWC is determined to labor in these directions, which represent to be part of discussions on international monetary reform. One thing led to the next and
an evolving agenda for us, but not a change in our mission. we began to work with the Eurasia Club of Economic Scientists to co-organize an annual
When we hosted our first conference in 1994, our discussions were centered on the conference on the international financial architecture and as a result we were able to engage
international monetary system, on exchange rate instability, and on what Europe as more deeply with Central Asia.
a whole needed to do to reduce the frequency of exchange rate crises, so common At a time of rising tensions, we have come to realize how important stability of
back then. At the time we also contemplated the idea that, moving forward, a mecha- the global economy is for global peace. Fragmentation and divergence is exactly
nism was needed to deal with sovereign debt crises. Ironically, we had not anticipat- what Europe decided to fight against by its major undertaking of creating a common
ed the financial crisis that would hit Mexico only two months later. We also did not currency that would protect Europe from currency instability. This is a project
fully comprehend the role to be played by the rise of China and other emerging economies, that we also followed closely through holding many meetings in both Europe and
but we were nevertheless aware that the challenge of a new Bretton Woods would be to beyond. And now, Europe is at a crossroads with the eurozone and the euro being
reintegrate billions of people in the global market place. We also realized from early on that called into question and the need for good governance emerging as critical. What is
the network of influence of emerging economies was not yet sufficiently developed and that at stake in Europe is not only the future of the currency but the capacity to establish and
it was important to hear from experts from these countries at our seminars. accept the pan-European institutions needed for a common currency to flourish.
As I reflect on the past twenty years, I am struck by the fact that structural change has al- What I have also learned over the course of the past twenty years is to understand
ways been accompanied by a major financial crisis. This was the case, with Mexico in 1995 China better. More than a decade ago I started traveling to China regularly and organizing
and also after the Asian financial crises. I also remember how at the time the international seminars on the international financial architecture. I have been invited to participate in
financial community did not perceive the creation of the G20 and the Financial Stability many meetings in China where the discussions have centered on the reform of the inter-
Forum at the Finance Ministers’ level as a major development. It was only when we found national monetary system. From Beijing to Shanghai, Harbin, Hangzhou, Chongying,
ourselves in the midst of the Great Recession that the G20 was elevated to the status of Qingdao, so many trips were needed to firmly believe that China will not only shape the
major forum. post Bretton Woods System but that it will also become the agent of change.
However, from the beginning we felt that the G20 was an interesting group worth paying I have so often tried to understand why there has been so little progress. Why so few real
attention to and we started organizing seminars around the G20 as early as 1999. The G20 reforms? What will it take to modernize the global financial architecture? Perhaps Bretton
XViii bretton woods: the next 70 years reinventing bretton woods at 20 XiX
Woods was unique and cannot be repeated? Calls for a new Bretton Woods abound with the international financial architecture of the 20th century, we need to embrace the emer-
peaks after each crisis and most notably after the great financial recession of 2009. I do not gence of a multipolar world where China, the US, and Europe can become anchors for
know the answer to these questions but hope that perhaps some clues lie within this book. stability and can provide the foundations for a global economic order based on prosperity.
Although 2014 marked the seventy-year anniversary of the Bretton Woods Confer- Over the past six months, China has pushed forward the creation of three inter-
ence, unlike past hallmark dates, no major commemoration was organized. Perhaps failure national institutions dedicated to development finance: the Shanghai-based New
to reform the governance of the IMF cast a shadow on a generation of policy makers’ Development Bank, along with Brazil, Russia, India and South Africa; the Asian
desire to celebrate? Are we at a turning point that signals a loss of interest? Infrastructure Investment Bank; and the Silk Road Fund. The importance of these dif-
Maybe, but this is not my view. In the course of this anniversary year we organized ferent initiatives can be judged by their centrality to Chinese President Xi Jinping’s aim
ten seminars that spanned the globe from east to west and north to south. The response to achieve the “Chinese dream” of recapturing the status the country enjoyed during the
to this work was tremendous. We had Jacques de Larosiere, Michel Camdessus, close to most powerful passages in its history. Indeed, “cherish obscurity, hide your brightness”
a half a dozen Bretton Woods historians of great import, numerous finance ministers, seems to no longer be the panacea in China. Certainly, the establishments of a BRICS de-
governors, renowned experts and the list goes on. Later, in the course of the year when velopment bank and a contingency reserve arrangement seem to indicate new momentum
we decided to launch this commemorative but also forward looking publication, for change in intergovernmental finance and cooperation. These developments may also
the response was equally strong. From Joe Stiglitz, to Justin Yifu Lin, from Ministers mark a rebuttal of the existing framework dominated by the main multilateral institutions
Babacan and Padoan, and so many others, all wanted to express their personal views on but also increasing confidence that China and leading emerging markets can move for-
how to face the challenges that lie ahead for the global economy. This book clearly reflects ward on their own. This is still only a modest start but the motion is undeniable.
the commitment of so many leaders and experts to preserve and adapt the international Although the euro lost (and the US dollar gained) some ground during the six years
financial architecture in order to prevent future conflicts and instability. There is a will that between 2007 and 2013, the US dollar and the euro maintained their first and second
needs to be garnered to complete “the work not done at Bretton Woods” (see the essay by ranks respectively. However the renminbi (RMB) climbed from the twentieth to the ninth
Joe Stiglitz). This is a vision for the future that we need to hold on to. All that is missing slot. We might see emerging in the not too distant future a tri-polar system between the
is an agent for change. dollar, the euro, and the RMB. China will have achieved capital account liberalization and
RMB convertibility for all practical purposes within two to three years. The RMB already
the neXt twenty years represents an important anchor for Asian currencies. What will happen when the RMB
In light of the road that we have traveled and the ideas that we have heard in the past becomes another international reserve currency? It will be imperative to avoid political
twenty years, what should be our agenda moving forward? The character of financial glo- tensions, to accommodate rising powers, and to embrace the need for new forms of mul-
balization has changed, just as capitalism changed over the course of the 19th and 20th tilateralism. What will be at stake is the future of the Bretton Woods System as we know
centuries. While the United States will remain a major player, the international financial it. But, if there is indeed consensus for the need to adapt, what is missing? Another crisis?
architecture needs to accommodate China’s increased importance. The international fi- In 2016 China will have the leadership of the G20. This will represent a unique win-
nancial system is in profound flux, which may overwhelm the institutions charged with dow of opportunity for China to partner with other nations to help forge and shape the
managing global problems. governance of the international financial system for the years to come. The credibility and
No doubt more debate is needed to understand the role of China in the global econo- the legitimacy of the IMF will also be at stake. Can the IMF become an arbiter of the in-
my. As was the case after World War II when the US played a leading role in establishing ternational monetary system without adapting its governance structure to the new realities?