The Dollar and the New Bretton Woods System1
University of California, Berkeley
It is an honor and a pleasure to be here at the Cass School to deliver the Thornton
Lecture. Henry Thornton, as some of you know, made a number of important
contributions to the literature on the international monetary system. This is a topic, the
operation of the international system, that has been somewhat out of fashion in recent
years, at least in academia. Now it is back, of course, with a vengeance.
The title of my talk is a variant of the title of an NBER working paper I put out
last May, entitled “Global Imbalances and the Lessons of Bretton Woods,” in which I
predicted a significant decline in the dollar “sooner rather than later.”2 You can see that I
followed the first rule of forecasting: give them a forecast or a date, but never both. In
light of recent events, my talk this evening is an opportunity to say I told you so and to
explain why. In addition, I want to indicate how my thoughts on these matters have
evolved over the last six months, and to offer a prediction for the future.
My starting point is with the influential school of thought that views the current
international monetary and financial system as Bretton Woods reborn.3 Its story goes like
this. Today, like 40 years ago, the international system is composed of a core and a
periphery. The core has the exorbitant privilege of issuing the currency used as
international reserves and a tendency to live beyond its means. The periphery, which still
has a way to go in catching up to the core, is committed to export-led growth based on
1 Text of the Henry Thornton Lecture delivered at the Cass School of Business, 15 December 2004.
2 Barry Eichengreen, “Global Imbalances and the Lessons of Bretton Woods,” NBER Working Paper no.
10497 (May 2004).
3 Michael Dooley, David Folkerts-Landau and Peter Garber, “An Essay on the Revived Bretton Woods