Austin, Κ. (2014) “Systemic equilibrium in a Bretton Woods II-type international monetary system: the special roles of reserve issuers and reserve accumulators“, Journal of Post Keynesian Economics, 2014, vol. 36, issue 4, pages 607-634.
This article develops a model, based on balance-of-payment identities, of the new international monetary system (Bretton Woods II or BWII). It shows that if some countries engineer current account surpluses by exchange-rate manipulation and foreign-reserve accumulation, the burden of the corresponding current account deficits falls first on the reserve-issuing countries, unless those savings inflows are diverted elsewhere. The imbalances of the BWII period result from official, policy-driven reserve flows, rather than market-determined, private savings flows. The struggle to divert these unwanted financing flows is at the root of the “currency wars” within the system.
Relevant posts:
- Sinn, H.-W. (2014) The Euro Trap. On Bursting Bubbles, Budgets, and Beliefs, Oxford University Press 2014.
- Crafts, N. (2014) “What Does the 1930s’ Experience Tell Us about the Future of the Eurozone?“. JCMS: Journal of Common Market Studies, 52: 713–727, July.
- Bordo, M. (2014) “TARGET Balances, Bretton Woods, and the Great Depression“, VoxEU Organisation, 21 March.