ABSTRACT
Among the academic experts who specialize in the study of the international monetary system, it has been known for over a decade that that system was approaching a liquidity crisis; that it could not long survive in its existing form. The officials concerned with the actual operation of the system came tardily to accept the judgement, and to work out plans for the necessary reform of the system. But their progress was too slow to keep pace with the economic dynamics of international monetary crisis. Almost immediately after agreement had been reached on a plan for the reform of the system – in August–September 1967 – the expected crisis broke. Triggered by the devaluation of sterling in November 1967, successive waves of speculation on a devaluation of the dollar in terms of gold led to massive outflows of gold from official reserves into private hands, with the result that in March 1968 the world’s monetary authorities decided to sever the link between the official and the private gold markets. That decision put an end to the international monetary system of the post-Second World War period – the gold exchange standard based on the dollar as reserve currency – while leaving open the question of the direction in which the system would evolve thenceforward. That question involves the roles to be played in future by gold, dollars, and the newly invented international reserve asset called ‘Special Drawing Rights’. Subsequently, a chain of developments associated basically with the undervaluation of the German mark, but sparked by the ‘events’ of May 1968 in France and leading through the ‘Bonn crisis’ of November 1968 – in which the Germans refused to appreciate and the French to devalue – to the speculation on an appreciation of the mark in May and to the actual devaluation of the franc in August 1969, have called expert attention to another major problem of the postwar international monetary system, the absence of sufficient flexibility of exchange rates.
