The Missing Bretton Woods Debate over Flexible Exchange Rates
The collapse of the gold standard in the 1930s sparked a debate about the merits of fixed versus floating exchange rates. Yet the debate quickly vanished: there was almost no discussion about the exchange rate regime at the Bretton Woods conference in 1944 because John Maynard Keynes and Harry Dexter White agreed that exchange rate stability through fixed but adjustable pegs was the right approach. In light of the difficult macroeconomic tradeoffs experienced under the gold standard a decade earlier, the outright rejection of floating exchange rates seems surprising. This paper explores the views of leading economists about the exchange rate provisions in the Bretton Woods agreement and examines why arguments for floating exchange rates were so quickly dismissed.
This paper was prepared for the Yale conference on Bretton Woods, November 5-6, 2015. I am grateful to Michael Bordo, Eric Helleiner, and other participants for helpful feedback. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.