Thursday, March 22, 2012

IEHC - Richard Roberts - ‘Sterling and the End of Bretton Woods’

‘Sterling and the End of Bretton Woods’
Richard Roberts, University of Sussex

"The final phase of the Bretton Woods international monetary system was marked by a series of crises from November 1967 to March 1973. The four principal episodes, out of at least a dozen such events, were:

• November 1967 – devaluation of sterling
• August 1971 – suspension of the convertibility of the dollar into gold
• June 1972 – floating of sterling 

• February/March 1973 – second devaluation of the dollar and generalised floating

Thus sterling held centre stage twice, in November 1967 and June 1972. On both occasions, the sterling crisis was followed by bouts of instability in other major currencies and ultimately by the breakdown of the system: the Bretton Woods system in August 1971; and the modified Smithsonian Agreement parities, in February/March 1973.
There were two dimensions to these episodes: a political dimension and a market dimension. The involvement of senior politicians, sometimes in dramatic conflict with counterparts, and the attendant press attention, generated a public perception of a ‘crisis’ that was assigned to a particular country or currency. The market dimension was not so publicly visible and tensions in the foreign exchange markets are less straightforwardly attributable to a particular currency. The foreign exchange market is a zero-sum game: downward pressure on one currency means upward pressure on others, and vice-versa. In this sense, each of the international monetary crises was a crisis of the whole system, rather than a component currency.
Nevertheless, the term ‘sterling crisis’ was applied at the time to two of the key crises and the instability of sterling was plainly central to both episodes. Certainly policy-makers in the 1960s were convinced that the defence of sterling was essential for the stability of the dollar and hence the Bretton Woods system. ‘Whenever sterling might be devalued’, recalled Milton Gilbert of the Bank for International Settlements, ‘confidence in the dollar price of gold could be expected to evaporate and a large rise in the market for gold, as well as central bank conversions of dollars for gold, could be anticipated.’..."

"...As politicians and officials struggled to manage the increasingly unstable and dysfunctional international monetary system in the late 1960s and early 1970s, a countervailing development was taking place: moves towards the creation of a European monetary bloc and ultimately a European single currency. This endeavour was not successful, at least on the time-scale originally envisaged. Thus another question arises: Did sterling instability significantly impede the progress towards EEC monetary union?..."

"...US intervention in the foreign exchange market and participation in the inter-central bank swap network had ceased on 15 August 1971, with the suspension of dollar convertibility into gold, and had not been resumed with the 18 December 1971Smithsonian Agreement. ‘Benign neglect’ was a negotiating posture on the part of rumbustious Texan, John Connally, the US Treasury Secretary, to put pressure on the surplus countries ahead of the forthcoming negotiations on fundamental reform of the international monetary system. The US stance generated complaints from the IMF and other countries: the US embassy in Bonn reported that during the summit between Pompidou and Brandt on 3-4 July 1972 the French President had protested: ‘that the Europeans were now “defending the dollar” while the US sat by and did nothing.’ There were also critics at home, most outspokenly Arthur Burns, chairman of the Federal Reserve. And then on 16 May, 1972, out of the blue, Connally resigned..."



IEHC 2006XIV International Economic History Congress Helsinki, Finland, 21 to 25 August 2006
The International Economic History Association (IEHA) held its XIV International Economic History Congress in Helsinki, Finland, 21 to 25 August 2006. The local organising institutions were the Department of Social Science History and the Department of History at the University of Helsinki, in collaboration with the Finnish Economic History Association.
Almost 1400 participants from over 65 countries attended the congress. 123 sessions were held during the five day congress. The themes related to economic and social history such as: macroeconomic history, business history, labour history, monetary history, industrialization, trade and maritime history, demographic and family history, gender studies, urban history, and methodological issues. They covered periods from antiquity to the present day, and a variety of regions around the world. 


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