Federal Reserve Policy and Bretton Woods

29 Pages Posted: 10 Nov 2014 Last revised: 13 Nov 2014

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Owen Humpage

Federal Reserve Bank of Cleveland

Multiple version iconThere are 2 versions of this paper

Date Written: November 2014

Abstract

During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stopgap devices—the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations—to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on the domestic objectives and shifted responsibility for international developments to the Treasury. Removing the pressure of international considerations from Federal Reserve policy decisions made it easier for the Federal Reserve to pursue the inflationary policies of the late 1960s and 1970s that ultimate destroyed Bretton Woods. In the end, the Treasury’s stopgap devices, which were intended to support Bretton Woods, contributed to its demise.

Suggested Citation

Bordo, Michael D. and Humpage, Owen, Federal Reserve Policy and Bretton Woods (November 2014). NBER Working Paper No. w20656. Available at SSRN: https://ssrn.com/abstract=2521415

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Owen Humpage

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

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