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Is the balance of payments a matter for private sector indebtedness only? Can government ignore the balance of payments?
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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"Recent balance of payments experience suggests that in advanced open economies, liberalised capital movements and floating exchange rates have abolished the 'external constraint'". Compare macroeconomic policy towards the current account under fixed exchange rates with capital controls (as under Bretton Woods) with the current international financial system. Is the balance of payments a matter for private sector indebtedness only? Can government ignore the balance of payments? The past century has seen the implementation of different exchange rate mechanisms in the face of radically changing political and economic situations. We have seen a shift from the gold standard before 1914, to the free flat period (1919-1926), Ephemeral gold standard (1927-1931), and the managed float (1931-1939) during the interwar years. This was followed by the Bretton Woods system, and after its collapse in the early 1970s, most of the major currencies were floating against each other. Since then different countries have used...
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