The End of Bretton Woods

I did want to make one other point about Dani Rodrik’s The Globalization Paradox, namely that at times he seems to me to be glossing over the fact that the Bretton Woods system collapsed for a reason. But it did. Conceivably western leaders could have responded to its collapse by creating a whole new system of fixed exchange rates pegged at different levels. But that would have been hard, and there would have been big credibility problems. The point is that it’s not as if the Nixon administration rode into town in early 1969 intending for the system to collapse because Nixon had some some Milton Friedman papers about the virtues of flexible exchange rates. What happened was that European countries started amassing claims on US gold reserves that we couldn’t meet, so we were forced into a fairly humiliating position.