The Revived Bretton Woods System's First Decade
The revived Bretton Woods framework we proposed in 2003 remains a useful way to understand the international financial system. We document that the system survived the 2008 crisis. Looking forward, we argue that the system will continue to evolve as we expected. China is likely to graduate from the periphery to the center in the next few years. This graduation process could be smooth or associated with recurrent financial crises. During this transition the magnitude of net capital outflows from the periphery will continue to depress real interest rates in industrial countries at every phase of the business cycle. Finally, recent policy initiatives suggest that India is poised to replace China as the dominant periphery country.
We are grateful to Raj Hindocha, Sahil Mahtani, and Michael Spencer for their very helpful comments and Evan Smith for expert research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.