The Bretton Woods System: Paradise Lost?
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The Bretton Woods System frequently appears in the scholarly literature as a model for
international monetary reform. This paper briefly considers its operation. It argues that the
system's principal achievement, the maintenance of stable exchange rates, was product not of
the agreement finalized at the Bretton Woods Conference alone but of two exceptional
features of the postwar world. One was the limited international mobility of capital. Capital
controls provided policymakers room for maneuver; they softened the tradeoff between
domestic objectives and defense of the exchange-rate peg. The other was singular scope for
growth resulting from postwar reconstruction and catch-up. In these circumstances, countries
felt little need to engage in discretionary monetary and fiscal policies that might have
undermined the currency peg.