Βασίλειος Σωτήρας “Bretton Woods II – on its way out?”

Βασίλειος Σωτήρας

“Bretton Woods II – on its way out?”
Frankfurt European Banking Congress 2008
Henrique de Campos Meirelles Banco Central do Brasil

Τοσο για το παραμυθι ότι η συμφωνία έληξε το 1971 που μονομερώς οι ΗΠΑ ξεχωρίσαν την ισοτιμία του δικού τους νομίσματος από την ισοτιμία χρυσού ....

http://www6.iadb.org/res/files/Imbalances/pp/SETSER-BRAD-PPT.pdf

Bretton Woods 2: 

Is it sustainable?

Brad Setser

Roubini Global Economics &

Global Economic Governance Center, 

University College, Oxford

Outline

• Bretton Woods 2: Still going strong. 

• Critics missed some sources of stability

• Risks of unraveling remain

Bretton Woods 2: Core Features

• Periphery pegs or manages exchange rates

• In process, reserve accumulation in the 

periphery finances center at low real rates

• Shift into tradables production in the periphery

– Dooley, Folkerts-Landau and Garber (DFG) 

emphasize large underutilized rural labor force

• Shift out of tradable production in the center

• Reserves = collateral for FDI/ Offshore 

intermediation of Chinese savings

– This part doesn’t work

How stable?

• DFG (July 2004) lasts for a decade, maybe more

– 20 years of migration to absorb China’s surplus labor

– “there are a line of countries waiting to follow …. Asia …

sufficient to keep the system intact for the foreseeable future.”

• Eichengreen (2004): Central bank defection

• Roubini-Setser (2005): Structurally unstable

– Meaningful risk BW II collapses before end of 06

– Significant risk it breaks down before end of 08

– Near certain collapse before 2010

– Based on financing an expanding trade deficit

• DFG (2005): gradual real depreciation and rise in real 

interest rates stabilize US external debt

2005 and first part of 2006 look 

good for DFG (2004 version)

• 2005

– Record reserve accumulation in periphery

• Emerging market reserve growth – counting all Saudi assets/ $15b 

shifted to Chinese state bank – rose to around $650b

• US data understates official financing

– Low real rates in center

– Limited strains on periphery

• Record Chinese reserve growth ($250b) with falling inflation, falling 

interest rates on sterilization bills and contained credit growth

• Oil exporters avoid sterilization by holding export proceeds offshore

• 2006

– Solid reserve growth in Q1, spectacular reserve growth in Q2

Hard to argue with facts

SEE MORE

http://www6.iadb.org/res/files/Imbalances/pp/SETSER-BRAD-PPT.pdf