ABSTRACT
In March 1973 the Bretton Woods (BW) system of fixed but adjustable exchange rates collapsed and the principle trading economies moved to a system of floating exchange rates. Although it may be argued that this move reflected the persuasive power of economists (as we shall see below, practically all international economists in the 1950s and 1960s strongly advocated flexible exchange rates in preference to fixed exchange rates), it would be more realistic to say that the change was a reaction to events and not planned. Thus the breakdown of the BW system was more a reflection of its failure to deal effectively with the fundamental current account imbalances facing countries in the late 1960s and early 1970s. Such imbalances, in turn, were a reflection of the overissue of international money by the United States and the desire by governments to pursue macroeconomic policies which were at variance with their balance of payments position.
