Bordo, M. (2014) “TARGET Balances, Bretton Woods, and the Great Depression“, VoxEU Organisation, 21 March.
Since 2007, there has been a buildup of TARGET imbalances within the Eurosystem – growing liabilities of national central banks in the periphery matched by growing claims of central banks in the core. This column argues that, rather than signalling the collapse of the monetary system – as was the case for Bretton Woods between 1968 and 1971 – these TARGET imbalances represent a successful institutional innovation that prevented a repeat of the US payments crisis of 1933.
During the Eurozone crisis, an analogy was made between the events in Europe between 2007 and 2012 and the collapse of the Bretton Woods System between 1968 and 1971. There has been a build-up of TARGET liabilities since 2007 by some central banks (notably Greece, Ireland, Portugal, and Spain, or the ‘GIPS’), and of TARGET assets by Germany and others. This is compared to the historical accumulation of big US current-account deficits under Bretton Woods’s gold-dollar standard that were matched by the large surpluses of Germany and others (see Sinn and Wollmershaeuser 2011 and Kohler 2012).
Relevant posts:
- Sanchez, J., Varoudakis, Ar., (2014), “Tracking the causes of Eurozone external imbalances: New evidence”, 6 Φεβρουαρίου.
- Taylor, A., (2013), “External Imbalances and Financial Crises”, International Monetary Fund, IMF Working Paper No. 13/260, Δεκέμβριος.
- Bützer, S., Jordan, C. and Stracca, L., (2013), “Global and Eurozone imbalances: A question of civic capital?”, VoxEU, 23 Νοεμβρίου.