Britain and the Age of Imperialism Established a liberal international economic order LIEO through its hegemonic power Charles Kindleberger Britain and the Age of Imperialism Established a ID: 263573
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Slide1
Britain and the Age of ImperialismSlide2
Britain and the Age of Imperialism
Established a
liberal international economic order
(LIEO) through its “hegemonic” power (Charles
Kindleberger
).Slide3
Britain and the Age of Imperialism
Established a
liberal international economic order
(LIEO) through its “hegemonic” power (Charles
Kindleberger
).Britain maintained open markets and compelled other states to open their markets. The British Navy maintained commerce free from piracy. Slide4
Britain and the Age of Imperialism
Established a
liberal international economic order
(LIEO) through its “hegemonic” power (Charles
Kindleberger
).Britain maintained open markets and compelled other states to open their markets. The British Navy maintained commerce free from piracy.
Britain upheld the most stable exchange system in world history, the Classic Gold Standard. Slide5
Britain and the Classic Gold Standard
The Four Monetary Functions of British Hegemony
:Slide6
Britain and the Classic Gold Standard
The Four Monetary Functions of British Hegemony
:
1) Great
Britain led in the adoption of the gold
standard. Slide7
Britain and the Classic Gold Standard
The Four Monetary Functions of British Hegemony
:
1) Great
Britain led in the adoption of the gold
standard. 2) Great Britain acted as a market for "distress goods.”Slide8
Britain and the Classic Gold Standard
The Four Monetary Functions of British Hegemony
:
1) Great
Britain led in the adoption of the gold
standard. 2) Great Britain acted as a market for "distress goods.” 3) Great Britain acted as the "lender of last resort.” Slide9
Britain and the Classic Gold Standard
The Four Monetary Functions of British Hegemony
:
1) Great
Britain led in the adoption of the gold
standard. 2) Great Britain acted as a market for "distress goods.” 3) Great Britain acted as the "lender of last resort.” 4) Great Britain and the Bank of England through its discount policy, provided a supply of liquidity, of pound sterling into the
system, as "
counter-cyclical
finance.”
Slide10
The Impact of Britain’s Decline
With the decline of Britain, the world had no hegemon to write the rules of international exchange. Slide11
The Impact of Britain’s Decline
With the decline of Britain, the world had no hegemon to write the rules of international exchange.
The Genoa Conference (1922
)Slide12
The Impact of Britain’s Decline
With the decline of Britain, the world had no hegemon to write the rules of international exchange.
The Genoa Conference (1922
)
Established the gold-exchangestandard system.Slide13
The Impact of Britain’s Decline
The
1931 world financial crisis
and Gresham’s Law (
bad money drives out good
)The tendency for money of lower intrinsic value to circulate more freely than money of higher intrinsic and equal nominal value.Result was a world of highly flexible exchange rates and competitive devaluations. Slide14
The Bretton Woods Monetary SystemSlide15
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold. Slide16
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”Slide17
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”
Signatories agreed not to use capital controls or otherwise “sterilize” capital inflows.Slide18
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”
Signatories agreed not to use capital controls or otherwise “sterilize” capital inflows.
T
he
U.S. had sole responsibility for fulfilling the liquidity function. Slide19
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”
Signatories agreed not to use capital controls or otherwise “sterilize” capital inflows.
T
he
U.S. had sole responsibility for fulfilling the liquidity function.
N-1 problem:
the
dollar could not be devalued without devaluing all other currencies. Slide20
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”
Signatories agreed not to use capital controls or otherwise “sterilize” capital inflows.
T
he
U.S. had sole responsibility for fulfilling the liquidity function.
N-1 problem:
the
dollar could not be devalued without devaluing all other currencies.
T
his
system was
based on norms of compromise between the role of markets and states (what John
Ruggie
calls “embedded liberalism”).Slide21
The Bretton Woods Monetary System
The U.S. supplied the world's reserve currency: the
dollar, which was
pegged to gold and all other currencies were pegged to the dollar at $35 for an ounce of gold.
Other
countries pledged to keep their currencies within 'bands' in which the fulcrum was parity to the US dollar. Only the dollar was convertible into gold. The dollar was "as good as gold.”
Signatories agreed not to use capital controls or otherwise “sterilize” capital inflows.
T
he
U.S. had sole responsibility for fulfilling the liquidity function.
N-1 problem:
the
dollar could not be devalued without devaluing all other currencies.
T
his
system was
based on norms of compromise between the role of markets and states (what John
Ruggie
calls “embedded liberalism”).
Bretton Woods led to the creation an
array of international institutions: GATT (WTO);
the World
Bank; International Monetary
Fund.Slide22
The Causes of the Breakdown of Bretton WoodsSlide23
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”Slide24
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”
The Vietnam WarSlide25
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”
The Vietnam War
LBJ’s Great SocietySlide26
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”
Robert Triffin, a Yale economist, published a book entitled Gold and the Dollar Crisis (1960) – established “Triffin’s Dilemma”: the contradiction between the need for liquidity and the problem of “dollar overhang” (and its speculative implications). Slide27
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”
Robert Triffin, a Yale economist, published a book entitled Gold and the Dollar Crisis (1960) – established “Triffin’s Dilemma”: the contradiction between the need for liquidity and the problem of “dollar overhang” (and its speculative implications). The
U.S. policy of “
b
enign neglect” of its balance of payments (liability financing).
Valéry Giscard d’Estaing’s “exorbitant privilege”
The ability to import much more than a country exports and to finance it by creating money out of thin air.Slide28
The Causes of the Breakdown of Bretton Woods
The
period of dollar shortage (1944-1958
), during which sufficient liquidity was the main limitation on growth, came to an end. Yet the U.S. continued to spend, producing a growth “dollar glut.
”
Robert Triffin, a Yale economist, published a book entitled Gold and the Dollar Crisis (1960) – established “Triffin’s Dilemma”: the contradiction between the need for liquidity and the problem of “dollar overhang” (and its speculative implications). The U.S. policy of “
b
enign neglect” of its balance of payments (liability financing).
Surplus countries in Europe and Japan challenged the system by using convertibility of dollars into gold, forcing Nixon to “close the gold window” and take the U.S. off the gold standard in 1971 (officially via the Smithsonian Agreement, which devalued the dollar). Slide29
Key Lessons of the Death of Bretton WoodsSlide30
Key Lessons of the Death of Bretton Woods
Providing liquidity is not enough to sustain a well-balanced monetary system.
Slide31
Key Lessons of the Death of Bretton Woods
Providing liquidity is not enough to sustain a well-balanced monetary system.
Fixed pegs can provide stability for a while but the system needs greater flexibility as well. Slide32
Key Lessons of the Death of Bretton Woods
Providing liquidity is not enough to sustain a well-balanced monetary system.
Fixed pegs can provide stability for a while but the system needs greater flexibility as well.
No matter how much flexibility economies want, there must be a reserve currency in the system (
de facto
or
de jure
). Slide33
Key Lessons of the Death of Bretton Woods
Providing liquidity is not enough to sustain a well-balanced monetary system.
Fixed pegs can provide stability for a while but the system needs greater flexibility as well.
No matter how much flexibility economies want, there must be a reserve currency in the system (
de facto
or
de jure
).
Power and regimes matter in the international political economy. Slide34
The ‘Jamaica’ Monetary System
IMF signatories agreed in 1976 to abandon gold parity.
The treaty created a legal basis for an international system of floating exchange rates. National states would set their own par values for their own currencies.
Countries were free to create their own
regional
monetary unions (e.g., the European Monetary System).
The U.S.
de facto
retained its “exorbitant privilege.”