Credit Controls as an Escape from the Trilemma. The Bretton Woods Experience

24 Pages Posted: 2 Jan 2018

See all articles by Eric Monnet

Eric Monnet

Banque de France; Paris School of Economics (PSE)

Date Written: December 2017


The macroeconomic policy "trilemma" is widely used as a framework to discuss the rationale for capital controls and monetary policy autonomy under the Bretton Woods system (1944-1971). Without denying its usefulness, I highlight two facts at odds with assumptions underlying the "trilemma" argument. First, conflicts between internal and external objectives were uncommon. Second, using quantitative credit controls allowed central banks to disconnect their interest rate from the domestic monetary policy stance. They assigned the interest rate to the external side while managing domestic credit expansion with direct quantitative controls. This paper documents that such mechanism was explicitly considered by contemporary economists and central bankers as a way to escape international financial constraints. In such an environment, capital controls were used to complement credit controls. Interest rate spreads were neither a good measure of capital controls nor of central bank autonomy.

Keywords: Bretton Woods, capital controls, central banking, credit controls, macroprudential policies, reserve requirements, trilemma

JEL Classification: E58, F32, N20

Suggested Citation

Monnet, Eric, Credit Controls as an Escape from the Trilemma. The Bretton Woods Experience (December 2017). CEPR Discussion Paper No. DP12535, Available at SSRN:

Eric Monnet (Contact Author)

Banque de France ( email )


Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014

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