1. Britain and the Age of Imperialism

2.  Established a liberal international economic order (LIEO) through its “hegemonic” power (Charles Kindleberger).

3. 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.

4. 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.

5. Britain and the Classic Gold Standard The Four Monetary Functions of British Hegemony:

6. Britain and the Classic Gold Standard The Four Monetary Functions of British Hegemony: 1) Great Britain led in the adoption of the gold standard.

7. 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.”

8. 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.”

9. 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.”

10. The Impact of Britain’s Decline With the decline of Britain, the world had no hegemon to write the rules of international exchange.

11. 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)

12. 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-exchange standard system.

13. 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.

14. The Bretton Woods Monetary System

15.  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.

16. 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.”

17. 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.

18. 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.  The U.S. had sole responsibility for fulfilling the liquidity function.

19. 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.  The U.S. had sole responsibility for fulfilling the liquidity function.  N-1 problem: the dollar could not be devalued without devaluing all other currencies.

20. 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.  The U.S. had sole responsibility for fulfilling the liquidity function.  N-1 problem: the dollar could not be devalued without devaluing all other currencies.  This system was based on norms of compromise between the role of markets and states (what John Ruggie calls “embedded liberalism”).

21. 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.  The U.S. had sole responsibility for fulfilling the liquidity function.  N-1 problem: the dollar could not be devalued without devaluing all other currencies.  This 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.

22. The Causes of the Breakdown of Bretton Woods

23. 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.”

24. 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

25. 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 WarLBJ’s Great Society

26. 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).

27. 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 “benign 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.

28. 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 “benign 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).

29. Key Lessons of the Death of Bretton Woods

30.  Providing liquidity is not enough to sustain a well-balanced monetary system.

31. 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.

32. 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).

33. 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.

34. 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.”