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In light of the 75th anniversary of the Bretton Woods agreement, Tylor Cowen, a Professor of Economics at George Mason University, looks at how this unlikely agreement was first struck and subsequently survived against all expectations into the 70s, exploring the serendipitous side of policy agreements. Ranging from the unprecedented gold standard that marked the Western world between 1815-1914 to today’s fiat currencies, this piece is a good reminder never to feel too comfortable when it comes to monetary arrangements. It’s a fine line between the unimaginable and the eventual.
Why does this matter? We are all assuming that the current international monetary arrangement of broadly free-floating currencies and no capital controls will remain in place, but that could change. Already we are seeing restrictions on Chinese FDI in the US, the EU is testing ways to circumvent the dollar to allow continued trading with Iran. And of course China is inserting itself into the international financial system.
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