In 1944, officials from the Allied nations gathered in the sleepy New Hampshire resort town of Bretton Woods to plan to rebuild the global economy after the end of World War II. Their meeting would give birth to the World Bank, the International Monetary Fund, and an agreement that each nation would maintain its exchange rate relative to gold. The system eventually fell apart in 1971, when the U.S. abandoned the gold standard.
But economists in recent years have argued that the world has tilted back to a new -- if not formally agreed upon -- Bretton Woods-style system of fixed global exchange rates. Some say that this new system is fundamentally stable and will allow the U.S. to continue to finance its large and growing current-account deficit for a long time. But others say that this apparent re-emergence of a global fixed-rate regime won't last, and that it will unravel more quickly than it did the first time and at great cost to the world economy.
The Wall Street Journal Online asked economists Michael Dooley of Deutsche Bank and Brad Setser of RGE Monitor to explore the roots and potential dangers of this global economic balancing act.
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