IMF Working Papers

Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle

By Eric Monnet, Damien Puy

July 24, 2019

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Eric Monnet, and Damien Puy. Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle, (USA: International Monetary Fund, 2019) accessed November 21, 2024

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.

Summary

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.

Subject: Banking, Central banks, Commodities, Currencies, Gold, Gold reserves, International reserves, Monetary base, Money

Keywords: Bretton Woods, Bretton Woods system, Bullion gold standard, Central Africa, Central banks, Culture, Currencies, East Africa, Exchange rate, Foreign reserves, Global, Gold, Gold reserves, Gold share, Gold standard, Gold standard exposure, Gold standard practice, International reserves, Middle East, Monetary base, Th gold standard exposure, Unit of currency, WP

Publication Details

  • Pages:

    32

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/161

  • Stock No:

    WPIEA2019161

  • ISBN:

    9781498326773

  • ISSN:

    1018-5941