Breakdown of the Bretton Woods system
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The experiences of fixed exchange-rate systems and target zone arrangements have not been entirely satisfactory.
What lessons can economists draw from the breakdown of the Bretton Woods system?
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Adjusting monetary growth rates is the principal way to stabilize exchange rates. For example, raising the value of the dollar relative to the yen requires tightening U.S. monetary policy relative to Japanese monetary policy. The experience of Bretton Woods and similar experiments demonstrates that conscious and explicit coordination of monetary policies among sovereign authorities is difficult. The problem stems from the inability of sovereign authorities to coordinate their monetary ...
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