TY  - JOUR
AU  - Eichengreen,Barry
TI  - From Benign Neglect to Malignant Preoccupation: U.S. Balance-of-Payments Policy in the 1960s
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7630
PY  - 2000
Y2  - March 2000
UR  - http://www.nber.org/papers/w7630
L1  - http://www.nber.org/papers/w7630.pdf
N1  - Author contact info:
Barry Eichengreen
Department of Economics
University of California, Berkeley
549 Evans Hall 3880
Berkeley, CA 94720-3880
Tel: 510/642-2772
Fax: 510/643-0926
E-Mail: eichengr@econ.Berkeley.edu
AB  - U.S. balance-of-payments problems in the 1960s remain poorly understood.  In this paper I argue that they had two aspects.  On the one hand there was a problem of real overvaluation, evident in the erosion of the current account and reflecting the reluctance of the Fed, the Executive and Congress to subordinate domestic political and economic objectives to balance-of-payments goals.  In addition there was the systemic aspect, that the main source of international liquidity for the expanding world economy was dollar balances.  The role of the United States was to act as banker to the world, borrowing short and lending long.  But just like a bank providing liquidity transformation services, the U.S. was vulnerable to a  depositor run.'  So long as foreign central banks, concerned to preserve the Bretton Woods System, stood ready to support the dollar, they provided the equivalent of deposit insurance.  But unlike a classic lender of last resort, their willingness to do so was limited.  When that limit was reached in 1971, the dollar -- and the Bretton Woods System -- came crashing down.
ER  -