Front Matter

Front Matter

Atish Ghosh, and Mahvash Qureshi
Published Date:
April 2017
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From Great Depression to Great Recession

The Elusive Quest for International Policy Cooperation



Note to Readers

This is an excerpt of From Great Depression to Great Recession: The Quest for International Policy Cooperation edited by Atish R. Ghosh and Mahvash S. Qureshi.

Analyzing current issues through the prism of history can be instructive. The global financial crisis and the ensuing Great Recession raised concerns about adjustment fatigue, deflation, currency wars, and secular stagnation that presented a sense of déjà vu: similar concerns had arisen at the time of the Great Depression and at the end of World War II. As with earlier crises, these concerns prompted calls for greater international policy cooperation. This volume gathers papers by eminent scholars to discuss how history can inform current debates about the functioning and challenges of the international monetary system. An introductory chapter sets the stage for the other chapters in the volume by giving a broad overview of the performance of the international monetary system over the past century, highlighting the key events and challenges that shaped it. Subsequent sections look at historical antecedents of today’s challenges, describe how the modern international monetary system has been—and continues to be—shaped through international financial diplomacy, provide a present-day perspective, and examine international policy coordination.

This excerpt is taken from uncorrected page proofs. Please check quotations and attributions against the final published volume.

From Great Depression to Great Recession: The Quest for International Policy Cooperation

Edited by Atish R. Ghosh and Mahvash S. Qureshi ISBN: 978-1-51351-427-7 Pub. Date: April 2017

Format: Digital; Paperback, 6x9 in., pp.229 Price: US$27.00

For additional information on this book, please contact:

International Monetary Fund, IMF Publications

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© 2017 International Monetary Fund


  • Foreword

  • Preface

  • Abbreviations

  • Contributors

  • 1 | From Great Depression to Great Recession: An Overview

    Atish R. Ghosh and Mahvash S. Qureshi

  • Part I. Perspectives from the Past: Secular Stagnation and Asymmetric Burden of Adjustment

  • 2 | Learning Lessons from Previous Crises: The Capital Account and the Current Account

    Harold James

  • 3 | Debates about Economic Adjustment in Europe before the Euro

    Emmanuel Mourlon-Druol

  • 4 | Coordination Failures during and after Bretton Woods

    Catherine R. Schenk

  • 5 | Capital Flows and International Order: Trilemmas and Trade-Offs from Macroeconomics to Political Economy and International Relations

    Michael D. Bordo and Harold James

  • Part II. International Monetary Negotiations and the International Monetary System

  • 6 | Forgotten Foundations of Bretton Woods

    Eric Helleiner

  • 7 | Hurling BRICS at the International Monetary System

    Benn Steil

  • 8 | The IMF Is—or Was?—the Keystone of the International Financial System

    James M. Boughton

  • Part III. Currency Wars and Secular Stagnation—The New Normal?

  • 9 | Reform of the International Monetary System: A Modest Proposal

    Richard N. Cooper

  • 10 | Global Bond Market Spillovers from Monetary Policy and Reserve Management

    Robert N. McCauley

  • 11 | International Liquidity and Governance

    Edwin M. Truman

  • Part IV. Prospects for the Future: Toward a More Cooperative System

  • 12 | Three Myths about International Policy Coordination

    Atish R. Ghosh

  • 13 | Moving Toward a More Cooperative International Monetary System

    Maurice Obstfeld

  • 14 | Reforming the Global Reserve System

    José Antonio Ocampo

  • 15 | Macroeconomic Policy: What and How to Coordinate Internationally

    Alexander K. Swoboda

  • 16 | Toward a More Cooperative International Monetary System: Some Remarks

    Paul A. Volcker

  • 17 | Toward a More Stable International Monetary System: Key Takeaways

    Atish R. Ghosh and Mahvash S. Qureshi

  • Index


In 2014, we celebrated the 70th anniversary of the Bretton Woods Conference; 2015 marked the 40th anniversary of the IMF’s Second Amendment to the Articles of Agreement and the 30th anniversary of the Plaza Accord—one of the few instances of explicit international policy coordination. Against the backdrop of the world economy still limping out of the global financial crisis, these events provided the impetus for us to convene a symposium, From Great Depression to Great Recession: The Elusive Quest for International Policy Cooperation, at IMF headquarters in January 2015, with the aim of seeking insights from history about how to tackle present-day problems in international monetary relations.

The parallels with history are striking.

During the interwar period, for instance, deficit countries struggled to correct imbalances under the fixed exchange rates of the gold standard; there was an asymmetric burden of adjustment between deficit and surplus countries; and all countries, including those with surpluses, were reluctant to engage in fiscal expansion. The analogy may be inexact, but many of the same concerns are echoed in the European headlines of today. More disturbing is the parallel to the 1930s in the rise in populism, nationalism, and extremism—bred of unemployment, economic frustration, and social tension: the legacy of financial crisis.

The phrase “secular stagnation” was coined by Harvard economics professor Alvin Hansen in 1938; Larry Summers used it again in 2014 at the IMF’s Fifteenth Jacques Polak Annual Research Conference. Nor are “currency wars,” a coinage we hear all too often today, a new phenomenon—the interwar period was characterized by a disastrous combination of competitive devaluations, exchange restrictions, and trade barriers.

In addition, the 1930s saw a scramble for gold reserves, which imparted a huge deflationary bias to the world economy that was especially damaging to debtors. Today, the scramble may be less global, but emerging market economies have been relentless in accumulating reserves—partly to keep their currencies competitive in the face of current or capital account surpluses, partly as insurance against the volatility of private capital flows. Again, this trend may be imparting a deflationary bias at a time when the global economy can least afford it.

I believe these parallels—and there are plenty more—are not coincidental. They arise because the core challenges of the international monetary system are constant: (1) helping countries adjust without resorting to measures “destructive of national or international prosperity”; (2) promoting an equitable burden of adjustment between surplus and deficit countries; and (3) ensuring sufficient global liquidity—by which I mean the ability of solvent countries to finance deficits even during times of stress.

Though manifested in different ways, these challenges were present in the interwar period; they were present during the Bretton Woods years; they were present post–Bretton Woods; and they are surely with us today—indeed amplified by the growth in private capital flows, and rising global interconnectedness. That is why I believe that analyzing current issues through the prism of history can be instructive.

So what are the current issues with the international monetary system? Let me mention three—not necessarily with the expectation of getting immediate answers, but in the hope that they will foster discussion and debate.

The first, alluded to above, is the scramble for international reserves (and the underlying causes thereof ). In 2007, emerging market economies held US$3.5 trillion reserves; as of the end of 2014, that has nearly doubled to US$6.6 trillion. There are various reasons to worry about this, but what is the solution? Should these countries be more symmetric in their foreign exchange intervention? Should they try to insulate themselves from volatile capital flows? Is this the time to fundamentally rethink the role of finance in national economies, and of cross-border banking flows in the world economy? How do we create credible alternatives to reserves accumulation for countries concerned about current or capital account shocks? What role can IMF contingent facilities such as the Flexible Credit Line (FCL) and Special Drawing Rights (SDRs) play? And do we need to revive ideas of sovereign bankruptcy mechanisms, and the interplay between official and private creditors?

The second issue is the risk of secular stagnation—a prolonged period of slow growth of the world economy because of low investment and deficient demand. Despite some positive signs in the US economy, and lower oil prices, the news from the rest of the world is far from reassuring. How can the global economy pull itself up by its bootstraps? Is this a time for paying down public debt? Or for embarking on much-needed public infrastructure investments? What role can emerging markets, including China, play in acting as a locomotive for the world economy without jeopardizing their own financial stability?

The third concern is that a world of secular stagnation will become a world of currency wars. With monetary policy at its limits, and fiscal policy hobbled by high debt and political constraints, it becomes very tempting to boost aggregate demand through currency depreciation. Personally, I do not believe the world is engaged in currency wars yet, but as a multilateral institution, we at the IMF need to consider very carefully how we think of foreign exchange intervention versus (conventional or unconventional) monetary policy when the impact on the exchange rate and capital flows—and hence on trading partners—may be much the same. Indeed, one may well ask whether, in a world of floating exchange rates, there is any meaningful distinction between monetary and exchange rate policies. Do we need to consider spillovers through the capital account as rigorously as those through the current account? More broadly, should we devise some mechanism for ensuring more equitable burdens of adjustment between surplus and deficit countries?

All this brings me to the issue of international policy coordination. The irony about coordination is the unanimity on the subject. Economists are unanimous that, provided there are fewer instruments than targets (which is surely the case these days), coordination will be beneficial; policymakers are equally unanimous that, whatever the merits of others coordinating, they themselves want no part of it. Why is this? Is it simply a lack of understanding that coordination is not about doing your neighbor a favor—it is about self-interested, but mutually beneficial, trades of policies? Or do the obstacles run deeper? And if so, what can be done about it?

Is there a useful role for some type of “neutral assessor” that can identify mutually beneficial coordinated packages and, most importantly, provide unbiased analysis of transmission effects? Without presuming to take on this role, the IMF has in recent years been increasing its analytical work on cross-border spillovers. An alternative, although potentially complementary, approach is to try to devise “rules of the road”—akin to those under Bretton Woods. Perhaps building on the IMF’s Integrated Surveillance Decision, we can think of rules that circumscribe policies that have significant adverse spillovers through either the current account (currency manipulation; unfair trade practices) or the capital account (volatile capital flows). A related question is whether we need to devise some rules of the road concerning spillovers of what are usually termed domestic policies (monetary and fiscal policies) paralleling the Articles’ strictures against exchange rate manipulation.

Whatever the approach, we need to find solutions. As Harry Dexter White, one of the principal architects of Bretton Woods, argued: “rich and powerful countries can safely and easily ignore the interests of poorer or weaker neighbors or competitors for long periods of time, but by doing so they imperil the future and reduce the potentiality of their own level of prosperity.” The lesson, he concluded, is that “prosperous neighbors are the best neighbors; that a higher standard of living in one country begets higher standards in others; and that a high level of trade and business is most easily attained when generously and widely shared.”

What has changed in the intervening 70 years is the composition of the “rich and powerful countries.” At Bretton Woods, it was basically the United States and the United Kingdom; by Plaza, it was the G7; now with the rising importance of emerging market economies, we are talking G20. Today, more than ever, we need multilateralism. The IMF quota increase that a supermajority of the membership recently approved, and that recognizes the reality of the dynamics of the world economy, is a crucial accomplishment: we need to build on it with bold, innovative thinking to strengthen the international monetary system.

In closing the Bretton Woods Conference, US Secretary of the Treasury Henry Morgenthau remarked that, while the monetary agreement may seem mysterious and obscure to the general public, it lay at the most elementary “bread-and-butter realities” of their daily lives, and constituted a first step through which “the nations of the world will be able to help one another in economic development to their mutual advantage and for the enrichment of all.”

The issues presented and discussed at the symposium by a distinguished group of historians, academics, and former policymakers lie at the very heart of the IMF’s mandate. Perhaps more importantly, they also define the bread-and-butter realities of the lives of billions around the world. This collection of papers from that symposium extends the exchange of insights and perspectives—including on some of the issues I have raised here—and provides new grist for analysis and debate. I would like to extend my thanks to the contributors to this volume for sharing their expertise and views in drawing lessons from history for today’s problems confronting the international monetary system.

David Lipton

First Deputy Managing Director, IMF


This volume is a collection of papers presented at a symposium on the history, functioning, and challenges of the international monetary system, organized by the IMF at its headquarters in Washington, DC, on January 23, 2015. The symposium, titled From Great Depression to Great Recession: The Elusive Quest for International Policy Cooperation, brought together eminent scholars and policymakers who provided in valuable insights into the origins and evolution of the present-day international monetary system, debated its performance, and exchanged views on the need for reform, and the prospects for international policy cooperation going forward.

The volume is divided into four parts—each corresponding to a session of the symposium, and including chapters that are based on the presentations made in that particular session. In addition, the first chapter provides a broad overview of the international monetary system over the past century, discussing the major events and challenges that shaped it, while the final chapter summarizes the key takeaways from the discussions during the symposium on fostering international policy cooperation. It must be reiterated, however, that the views expressed in this volume are those of the individual authors and do not necessarily represent those of the institutions with which they are affiliated.

Both the symposium and this volume were made possible because of the hard work of many people to whom we owe a debt of gratitude. Our special thanks to Chifundo Moya for his relentless and invaluable assistance in organizing the symposium, as well as in the publication of this volume; to Eun Sun Jang and colleagues in the IMF’s Multimedia Services and Corporate Services and Facilities Department for assistance with the symposium logistics; to Joanne Creary, Michael Harrup, Patricia Loo, and Rumit Pancholi for their diligent and skillful assistance in the publication of this volume; and to all the contributors for enthusiastically participating in the symposium and enriching the discussions, and for patiently cooperating in the production of this volume.

Atish R. Ghosh

Mahvash S. Qureshi



Bank for International Settlements


Brazil, Russia, India, China, and South Africa


collective action clause


Contingent Reserve Arrangement


European Central Bank


European Economic Community


European Monetary System


Exchange Rate Mechanism


European Union


Flexible Credit Line


Group of Five


Group of Seven


Group of Ten


Group of Twenty


International Bank for Reconstruction and Development


large-scale asset purchase


optimum currency area


Organisation for Economic Co-operation and Development


Organization of the Petroleum Exporting Countries


quantitative easing


Special Drawing Right


World Trade Organization


Michael D. Bordo is a Board of Governors Professor of Economics and Director of the Center for Monetary and Financial History at Rutgers University. Previously, he held academic positions at the University of South Carolina and Carleton University. He has also been a visiting professor at the University of California, Los Angeles; Carnegie Mellon University; Princeton University; Harvard University; and Cambridge University. He is currently a Distinguished Visiting Fellow at the Hoover Institution at Stanford University and a Research Associate at the National Bureau of Economic Research. He has also been a visiting scholar at the IMF; the Federal Reserve Banks of St. Louis, Cleveland, and Dallas; the Federal Reserve Board of Governors; the Bank of Canada; the Bank of England; and the Bank for International Settlements. He holds a BA from McGill University, an MSc from the London School of Economics, and a PhD from the University of Chicago. His publications include many articles in leading journals and 15 books on monetary economics and monetary history. He is the editor of a book series, Studies in Macroeconomic History, for Cambridge University Press.

James M. Boughton is a Senior Fellow at the Centre for International Governance Innovation. From 1992 to 2012, he was Historian of the IMF, where during 2001–10, he also served as Assistant Director in the Strategy, Policy, and Review Department. From 1981 until he was named Historian, he held various positions in the IMF Research Department. Dr. Boughton holds a PhD in Economics from Duke University, and before joining the IMF staff, he was Professor of Economics at Indiana University and had served as an Economist at the Organisation for Economic Co-operation and Development. He has written two volumes of IMF history: Silent Revolution: The International Monetary Fund 1979–1989 (2001) and Tearing Down Walls: The International Monetary Fund 1990–1999 (2012). His publications also include a textbook on money and banking, a book on the US federal funds market, several books that he edited or coedited, and articles in professional journals on international finance, monetary theory and policy, international policy coordination, and the history of economic thought.

Richard N. Cooper is Maurits C. Boas Professor of International Economics at Harvard University. He is a member of the Trilateral Commission, the Council on Foreign Relations, and the Brookings Panel on Economic Activity. Educated at the London School of Economics and Harvard University, he has served in the US federal government as Chairman of the National Intelligence Council; Under Secretary of State for Economic Affairs; Deputy Assistant Secretary of State for International Monetary Affairs; and Senior Staff Economist at the Council of Economic Advisers. He was also Chairman of the Federal Reserve Bank of Boston and Vice Chairman of the Global Development Network (2001–07). His most recent books include Boom, Crisis, and Adjustment (1993); Macroeconomic Management in Korea, 1970–1990 (1994); Environment and Resource Policies for the World Economy (1994); What the Future Holds (2002); and Rebalancing the Global Economy (2010).

Atish R. Ghosh is the Historian of the IMF. Before his current position, he was the Assistant Director, and Chief, Systemic Issues Division, in the Research Department of the IMF. Before joining the IMF, he was an Assistant Professor of Economics and International Affairs at Princeton University. He holds a BA, MA, and PhD in Economics from Harvard University. He also holds an MSc in Development Economics from Oxford University. He has published numerous articles on international economics, finance, and public policy in leading academic journals, as well as four books: Economic Cooperation in an Uncertain World (1994); Exchange Rate Regimes: Choices and Consequences (2003); Currency Boards in Retrospect and Prospect (2008); and Nineteenth Street, NW (2010), a novel about a global financial crash.

Eric Helleiner is Faculty of Arts Chair of International Political Economy at the University of Waterloo. Since receiving a PhD from the London School of Economics, he has won the Trudeau Foundation Fellows Prize, the Donner Book Prize, and the Canadian Political Science Association Prize in International Relations, and he is currently coeditor of the book series Cornell Studies in Money. Among his numerous books are Forgotten Foundations of Bretton Woods (2014); The Status Quo Crisis: Global Financial Governance after the 2008 Meltdown (2014); and (as coeditor) The Great Wall of Money: Power and Politics in China’s International Monetary Relations (2014).

Harold James is Professor of History and International Affairs and the Claude and Lore Kelly Professor of European Studies at Princeton University, and Historian of the IMF. Educated at Cambridge University, he has written numerous books, including International Monetary Cooperation since Bretton Woods (1996) and, more recently, The End of Globalization: Lessons from the Great Depression (2001); Europe Reborn: A History 1914–2000 (2003); and Making the European Monetary Union (2012). In 2004 he was awarded the Helmut Schmidt Prize for Economic History, and in 2005 the Ludwig Erhard Prize for writing about economics. He received an honorary PhD from the University of Lucerne.

Robert N. McCauley is a Senior Advisor in the Monetary and Economic Department of the Bank for International Settlements (BIS). Before October 2008 he served as BIS Chief Representative for Asia and the Pacific in Hong Kong Special Administrative Region. Before joining BIS, he was with the Federal Reserve Bank of New York for 13 years, leaving as head of the International Finance Department. He taught at the University of Chicago’s Graduate School of Business in 1992. He is a member of the Scientific Council of the Fondation Banque de France.

Emmanuel Mourlon-Druol is a Lecturer in the Adam Smith Business School, University of Glasgow, a Non-Resident Fellow at Bruegel, and a Visiting Professor at the Université Libre de Bruxelles. Educated at the European University Institute, he was previously a Pinto Postdoctoral Fellow at London School of Economics. He is the author of A Europe Made of Money: The Emergence of the European Monetary System (2012), and coeditor of International Summitry and Global Governance: The Rise of the European Council and the G7, 1974–1991 (2014) with Federico Romero. He has published in journals including Business History, Journal of Common Market Studies, and West European Politics.

Maurice Obstfeld is the Economic Counsellor and Director of the Research Department at the IMF. He is on leave from the University of California, Berkeley, where he is the Class of 1958 Professor of Economics and a former Chair of the Department of Economics. He joined Berkeley’s faculty in 1989, following appointments at Columbia University (1979–86) and the University of Pennsylvania (1986–89). From July 2014 to August 2015, he served as a member of President Obama’s Council of Economic Advisers. He has previously served as an honorary advisor to the Bank of Japan’s Institute of Monetary and Economic Studies. He is a Fellow of the Econometric Society and the American Academy of Arts and Sciences. He has served on the Executive Committee and as Vice President of the American Economic Association. He is the author of International Economics: Theory and Policy (with Paul Krugman and Marc Melitz, 2011); Foundations of International Macroeconomics (with Kenneth Rogoff, 1996); Global Capital Markets: Integration, Crisis, and Growth (with Alan Taylor, 2004); and of numerous articles in leading academic journals. He holds a PhD in economics from the Massachusetts Institute of Technology.

José Antonio Ocampo is a Professor at Columbia University and Chair of the UN Economic and Social Council Committee for Development Policy. He has been UN Under-Secretary-General for Economic and Social Affairs; Executive Secretary of the Economic Commission for Latin America and the Caribbean; and Minister of Finance, Minister of Agriculture, and Director of the National Planning Office of Colombia. His most recent books include Global Governance and Development (2016); The Economic Development of Latin America since Independence, with Luis Bértola (2012); Development Cooperation in Times of Crisis, edited with José Antonio Alonso (2012); and the Oxford Handbook of Latin American Economics, edited with Jaime Ros (2011).

Mahvash S. Qureshi is the Deputy Chief of the Systemic Issues Division in the Research Department of the IMF. Before joining the IMF, she held assignments at the Overseas Development Institute, United Nations University—World Institute for Development Economics Research, University of Cambridge, and the Sustainable Development Policy Institute. She has published extensively on international macroeconomic policy issues in scholarly journals and has coauthored and coedited several books, including Taming the Tide: A Policy Maker’s Vademecum for Managing Capital Flows (forthcoming); Capital Controls (2015); and Working Smart and Small: The Role of Knowledge-Based and Service Industries in Growth Strategies for Small States (2008). She holds a PhD and MPhil in economics from University of Cambridge, Trinity College.

Catherine R. Schenk is a Professor of International Economic History at the University of Glasgow. She holds a PhD from the London School of Economics and has held numerous academic posts, including at Royal Holloway, University of London, Victoria University of Wellington, and visiting positions at the IMF and the Hong Kong Monetary Authority, as well as the University of Hong Kong and Nottingham Business School campus in Seminyeh, Malaysia. She is an Associate Fellow in the international economics department at Chatham House in London, and the author of several books, including International Economic Relations since 1945 (2011) and The Decline of Sterling: Managing the Retreat of an International Currency (2010). She is coeditor of the Oxford Handbook of Banking and Financial History (2016). Her current research interests include the development of international banking regulation since the 1960s and the causes of the sovereign debt crisis of the 1980s.

Benn Steil is a Senior Fellow and the Director of International Economics at the Council on Foreign Relations in New York. He is also the Founding Editor of International Finance and lead writer of the Council’s Geo-Graphics economics blog. His latest book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, won the 2013 Spear’s Book Award in Financial History, took third prize in the Council on Foreign Relations’ 2014 Arthur Ross Book Award competition, was shortlisted for the 2014 Lionel Gelber Prize, and was listed in Bloomberg’s Best Books of 2013, a poll of global policymakers and chief executive officers.

Alexander K. Swoboda is a Professor of International Economics Emeritus and former Director of the Graduate Institute of International and Development Studies, Geneva. The Founding Director of the International Center for Monetary and Banking Studies, his academic appointments have included the University of Geneva, the University of Chicago’s Graduate School of Business, the London School of Economics, the University of Lausanne, and Harvard University. He was a Senior Policy Advisor in the Research Department of the IMF (1998–2000) and member of the Council of the Swiss National Bank (1997–2009). He has published widely on international monetary, macroeconomic, and financial issues and holds a PhD from Yale University.

Edwin M. Truman is a nonresident Senior Fellow at the Peterson Institute for International Economics. He served as Assistant Secretary of the US Treasury for International Affairs from 1998 to 2001 and as Counselor to the Secretary in 2009. He directed the Division of International Finance of the Board of Governors of the Federal Reserve System from 1977 to 1998. He has taught at Yale University, Amherst College, and Williams College. He is the author, coauthor, and editor of numerous books and articles, including Sovereign Wealth Funds: Threat or Salvation? (2010); Reforming the IMF for the 21st Century (2006); A Strategy for IMF Reform (2006); Chasing Dirty Money: The Fight against Money Laundering (2004); and Inflation Targeting in the World Economy (2003).

Paul A. Volcker worked in the US federal government for nearly 30 years, culminating in two terms as Chairman of the Board of Governors of the Federal Reserve System from 1979 to 1987. For 10 years, he served as Chairman of Wolfensohn & Co. and as Professor Emeritus of International Economic Policy at Princeton University. He has chaired a committee to determine existing assets in Swiss banks of victims of Nazi persecution, served as Chairman of the Board of Trustees of the International Accounting Standards Committee, chaired an inquiry into the United Nations Oil-for-Food Programme, and chaired a panel of experts to review the operations of the Department of Institutional Integrity of the World Bank. From 2008 to 2011 he served as Chairman of the President’s Economic Recovery Advisory Board. Educated at Princeton University, Harvard University, and the London School of Economics, he launched the Volcker Alliance in 2013 to address the challenge of effective execution of public policies and to help rebuild trust in government.

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