The Revived Bretton Woods hypothesis (BW II)
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Transcript The Revived Bretton Woods hypothesis (BW II)
The Revived Bretton Woods
hypothesis (BW II)
First Presentation
by Michael Bürscher
Supervisor: a.Univ.Prof. Dr. Martin Riese
WS 2008/09
The Revived Bretton Woods
hypothesis (BW II)
by Dooley, Folkerts-Landau and Garber
„today's international financial system is similar to
the Bretton Woods system„
Structure
Bretton Woods I
The Revived Bretton Woods hypothesis (BW II)
Export Led Growth
Criticism of the BW II hypothesis
Outlook
Bretton Woods I
International monetary regime (WW II – early 1970s)
“pegged rate” or “adjustable peg” currency regime
hegemonic monetary regime centred on the Dollar
center-periphery system
Bretton Woods I
Periphery Countries (Europe - Japan)
Undervalued exchange rates
(Dollar-) Reserve accumulation
Use centre region (US) as financial intermediary
US-FDI in Europe/Japan
The Revived Bretton Woods
hypothesis
Main points (1):
still US as centre of the system, but East Asia as the
developing periphery now
EA economies are pursuing export-led growth strategies
some EA currencies fixed against US-Dollar
other EA economies limit appreciations against the Dollar
East Asian Exchange Rate Pegs (against US-$)
Source: McKinnon (2004)
The Revived Bretton Woods
hypothesis
Main points (2):
EA economies run huge trade surpluses with the US
huge (and rising) US current account deficit
current account surpluses in East Asia
accumulation of dollar-denominated official reserves throughout
EA
US – Chinese Trade Balance
Current Account
Current Account (in billion US-Dollars)
600.00
400.00
200.00
billion $
0.00
China
United States
EA (NIE 4 + ASEAN 4)
-200.00
-400.00
-600.00
-800.00
-1000.00
2000
2001
2002
2003
2004
2005
2006
2007
US Current Account: 1960-2007
Official Foreign Exchange Reserves
(in million of Dollars; 1980-2004)
Source: McKinnon (2004)
The Global Framework
Trade Account Region (~Asia)
export-led development strategy
Capital Account Region (~Europe)
private investors drive capital flows and
exchange rates
Centre (United States)
issues the reserve currency
financial intermediary of the system
Export Led Growth
Central role in the BW-II framework
Fuel economic growth by promoting exports
“Exports mean Growth”
Justifications for Export-led
Growth
Lack of robust domestic demand
Innovation and technological diffusion
Attract Foreign Direct Investment (FDI)
Get foreign exchange via exports
Trade surpluses are more desired
Underemployed populations
Critique on Export-Led Growth
Reinforces dependency on industrial countries
Prevents development of domestic markets
“race to the bottom”
Relationship of ELG and financial instability
--> alternative: domestic demand-led growth
Mutual Benefits of the Current
System
East Asia
growth and development
creation of a competitive capital stock
foreign reserves as collateral / “insurance”
United States
Stable and low-cost funding for current account deficit
Accumulation of Dollars in EA helps to hold interest
rates down
Cheap imported consumption goods --> lower inflation
Benefits also for US-firms producing in EA
Criticism of the BW II - hypothesis
Highly disputed hypothesis
e.g.:
Eichengreen: “world has changed dramatically”
Palley: “fundamentally different microeconomic
regimes”
Goldstein, Lardy: BW II framework is focused on
China and other EA economies are hard to fit
into the BW 2 idea
Outlook
Bretton Woods I vs. Bretton Woods II
Facts on World Trade – In Line with the BW II?
Export-Led Growth “Now and Then”
Criticism of the BW II hypothesis
The Special Role of China
Euroland's Role in All This (?)
The End of BW 2 – Even Now?
Thanks for your Attention