Delaying the Inevitable: How the U.S. Avoided Adjustment and Preserved the Bretton Woods Monetary Order in the 1960s.

By the early 1960s, the Bretton Woods monetary order only in its teens was already trouble. The stability of the system's linchpin-the dollar-was seriously threatened by large and persistent U.S. balance of payments deficits, the attendant "gold drain" from the Treasury, and the possibility the greenback might face a speculative attack. In this paper, I conduct a detailed case study analysis to determine why the U.S. pushed for the creation of a system of central bank currency swaps among the "Paris Club" nations to protect the dollar rather than relying on an institutional solution already in place: namely, the international monetary fund (IMF) and its General Arrangements to Borrow (GAB). My historical analysis finds that as an option for external financing of its balance of payments deficit, the Paris Club swaps provided at least four distinct advantages relative to the IMF/GAB: liquidity via swaps was at once flexible, unconditional, discrete, and on-demand. This paper not only sheds light on the interests behind an incredibly important ad hoc agreement that helped preserve the Bretton Woods monetary order another decade until its inevitable dénouement in 1971, but also helps isolate state preferences for alternative external financing arrangements outside of the IMF that persist today. [ABSTRACT FROM AUTHOR]