The end of Bretton Woods - LJ2

The end of Bretton Woods: 

The crisis of the Dollar 1970s.

Learning Journal 2---------

As a group we have researched around the background and causes of the 1970's dollar crises. Now we aim to narrow down our research to relevance of the policy brief. Taking into consideration the feedback we received the, we now aim to empirically and analytically research the inconsistent trinity as the fundamental cause of the crisis. We project to do so by splitting each aspect of unholy trinity into individual in depth analysis's. As a result the summary of our work will be slightly altered to what we projected in LJ1. Findings and assigned tasks:

Fixed exchange rates - Free capital movements - Independent national monetary policies:

One of the three must be scarified in order for an economy to prosper. Due to the US failing to do so this lead to the 1971 dollar crisis.



Beverley:
After taking on board the advice received, we have narrowed the main body of research to focus on the ‘unholy trinity’ which will allow us to focus on three interrelated aspects of inflation, convertibility and capital control. We have started constructing our background section, which we will be simply placing our other finding in- highlight issues such as the oil shocks and overspending on war. Essentially our main focus is to explain how the pursuits of all three-policy positions lead to the breakdown of the Bretton Woods system. In attempting to maintain a fixed exchange rate and allow free capital movement in the US, their was a trade-off cost in meeting monetary objectives and thus lead to high levels of inflation and reduced the value of the dollar.

Mehraj:
Background - The Gold Standard, Brenton woods was based on a gold backed dollar and U.S government were finding it difficult to maintain the value of the dollar. The trouble first came in 1959 and 1960 when an american payment deficit led to loss of confidence in dollar.
Fixed exchange rates - This area of the subject I will be focusing on and the fixed exchange rate.
Exchange rates had never been truly fixed. Even under the old band of 0.75 percent on either side of the dollar parity, capital movement involved risks.
The floating exchange rate in 1971, suggest that when an upward float is undertaken to free monetary policy for domestic us has reached a high level, the freedom of monetary policy disappears again because the currency threatens to float out of reach.


Unal:
Background - In 1971 American policy making had moved far away from the Bretton Woods, this can be seen in both in the case of free capital movement and fixed exchanged rates.
The cause of the Dollar crises was not merely structural change, as national policy also played a key role in making the US create such an unholy trinity that it's own currency broke apart.
Capital movement - Has never in actual terms been completely free. Capital is closely related to exchange rates in monetary policy making. As one of the contributions to the Dollar crisis was that short-term capital movements was allowed to control the level of exchange rates. This allowed the Dollar to reach levels that were neither neither beneficial for the US or the global economy. My future research will be based upon this relationship and also the implications capital movement had on the US currency in 1971.

Angela:
Background - In the Autumn of 1970 president Nixon decided to change the course of the management of the American monetary economy. Rather than checking inflation, his priority was to go to cutting unemployment in time for the next elections. The policies implemented were inline with the return flow of Eurodollars, which caused inconsistency throughout the economy.
Low interest rates was one measure used as an incentive for investment and therefore, increase employment. This also meant less savings and more consumption which contributed further to inflation, consequently it was a disruptive policy for the dollar market, as the short-term low rates caused a sharp exit of Eurodollars, deepening the troubles for the dollar to gold relationship.
Alternative solutions - One alternative solution I have looked into and will further analyse is the idea that central bankers control of capital movement. This control should be stronger the more the country suffers from inflows. 

Holly:
‘Nixon Shock’ was a series of economic measures implement by President Nixon in 1971 with the cancellation of the direct international convertibility of the United States Dollar to Gold. This did not cause the end of Bretton Woods but made it inoperable due to one of its key components being cancelled, and was only stated to be a temporary measure. It was a temporary measure as Nixon stated that there were plans to reform Bretton Woods and once these reforms were in place he had intentions were to resume direct convertibility but ultimately, attempts of reform failed.
Capital Control: I have looked at arguments for and against capital control to gain greater understanding into its role in relation to Bretton Woods. The arguments I have found include recent examples from 2016 such as Haruhiko Kuroda, the governor of the Bank of Japan, should have been using capital control in order to support its currency, additionally, the IMF had plans to review capital control. I have attached a link that illustrates recent arguments maniuplating their side of the argument and policy suggestions : http://www.brettonwoodsproject.org/2016/04/imf-reopening-case-for-capital-controls/.