Working Paper: NBER ID: w16946
Authors: Michael D. Bordo; Owen F. Humpage; Anna J. Schwartz
Abstract: By the early 1960s, outstanding U.S. dollar liabilities began to exceed the U.S. gold stock, suggesting that the United States could not completely maintain its pledge to convert dollars into gold at the official price. This raised uncertainty about the Bretton Woods parity grid, and speculation seemed to grow. In response, the Federal Reserve instituted a series of swap lines to provide central banks with cover for unwanted, but temporary accumulations of dollars and to provide foreign central banks with dollar funds to finance their own interventions. The Treasury also began intervening in the market. The operations often forestalled gold losses, but in so doing, delayed the need to solve Bretton Woods' fundamental underlying problems. In addition, the institutional arrangements forged between the Federal Reserve and the U.S. Treasury raised important questions bearing on Federal Reserve independence.
Keywords: Bretton Woods; U.S. Intervention; Monetary Policy
JEL Codes: E0; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. Treasury's interventions in the foreign exchange market (F31) | confidence in the dollar (F31) |
| U.S. Treasury's interventions in the foreign exchange market (F31) | stability of the Bretton Woods system (F33) |
| U.S. Treasury's interventions in the foreign exchange market (F31) | postponement of necessary adjustments (F32) |
| U.S. Treasury's interventions in the foreign exchange market (F31) | temporary stability (C62) |
| U.S. Treasury's interventions in the foreign exchange market (F31) | eventual collapse of the Bretton Woods system (F33) |