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The Unfinished Task of Bretton Woods: Creating a Global Reserve System

Stiglitz, Joseph E.

Joseph E. Stiglitz argues that a new international monetary system is needed to avert the deflationary bias of the current system as the world has entered an era of deficient global aggregate demand. Outlines that the system rests on the US dollar, burdening the US unduly with the role of deficit country of last resort, reducing aggregate demand in the US, and eventually causing a loss of confidence in the sustainability of its deficit (Triffin dilemma). Stresses the role of increased and volatile capital flows and associated exchange rate fluctuations that have asymmetric inter-country effects resulting in a net decline of international consumption. Laments absence of an effective mechanism amid market failure to distribute aggregate demand globally, smoothly and reduce mounting inequalities between countries. Indicates that the euro area has forced external deficits on the rest of the world. States that the Bretton Woods conference has been unsuccessful in creating a global reserve currency amid a lack of understanding of the principles that govern international economics, inability to predict the evolution of the global economy, and a failure of politics. Emphasizes that the changes in the global economy have made the case for a global reserve currency more imperative but that politics may, as with Bretton Woods, be the greatest impediment to change. Proposes adoption of a global reserve system that could be based on the SDR.

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Also Published In

Title
Bretton Woods: The Next 70 Years
Publisher
The Reinventing Bretton Woods Committee

More About This Work

Academic Units
Economics
Published Here
April 15, 2019