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Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle
Author:
Eric Monnet null

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Mr. Damien Puy null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 161
Language:
English
Publication Date:
24 Jul 2019
DOI:
https://doi.org/10.5089/9781498326773.001
ISBN:
9781498326773
ISSN:
1018-5941
Pages:
32
Keywords:
WP; Bretton Woods system; gold standard exposure; unit of currency; exchange rate; gold standard practice; Bretton Woods; gold; foreign reserves; gold standard; culture; central banks; th gold standard exposure; bullion gold standard; Gold share; Gold reserves; International reserves; Currencies; Monetary base; Global; Middle East; East Africa; Central Africa
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Why did monetary authorities hold large gold reserves under Bretton Woods (1944–1971) when only the US had to? We argue that gold holdings were driven by institutional memory and persistent habits of central bankers. Countries continued to back currency in circulation with gold reserves, following rules of the pre-WWII gold standard. The longer an institution spent in the gold standard (and the older the policymakers), the stronger the correlation between gold reserves and currency. Since dollars and gold were not perfect substitutes, the Bretton Woods system never worked as expected. Even after radical institutional change, history still shapes the decisions of policymakers.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund