ECO 1302 Lecture Notes - Lecture 78: Bretton Woods System
26 Dec 2017
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Deficit nations were expected to follow restrictive monetary and fiscal policies voluntarily just as they would have done automatically under the gold standard whenever there was a balance of payments deficit. However, just as under the gold standard, this medicine was often unpalatable. The bretton woods system collapsed in 1971 in the face of the u. s. chronic balance of payments deficit. Table 3: successive canadian foreign exchange rate regimes since before confederation. There may be times when balance of payments considerations force it to contract its economy even though domestic needs call for expansion. Conversely, there may be times when the domestic economy needs to be reined in, but balance of payments considerations suggest expansion. Imagine a fixed exchange rate for canada in the context of 2009-2010 with the can. rising but the domestic economy still stagnating. Those in favor of fixed rates think that floating rates are so unpredictable that they reduce the amount of international trade.
