"Law and Economics of the Monetary Union" [2012] ELECD 681; in Eger, Thomas; Schäfer, Hans-Bernd (eds), "Research Handbook on the Economics of European Union Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of European Union Law

Editor(s): Eger, Thomas; Schäfer, Hans-Bernd

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849801003

Section: Chapter 16

Section Title: Law and Economics of the Monetary Union

Number of pages: 58

Extract:

16 Law and economics of the Monetary Union
Helmut Siekmann


1 HISTORY

From the end of World War II the international monetary system was based on the agree-
ment signed at Bretton Woods on 22 July 1944, which basically encompassed a system
of fixed exchange rates with an adjustment procedure and the obligation of the United
States of America to redeem dollars into gold. It was combined with the establishment
of the International Bank for Reconstruction and Development ­ the World Bank ­ and
the International Monetary Fund (IMF) and ultimately became the legal basis for the
supremacy of the U.S. dollar.
The tensions within the system of fixed exchange rates grew rapidly throughout
most of the 1960s partly because of domestic spending programs in the U.S. ("Great
Society") and the cost of the Vietnam War. The dollar was considered to be overvalued
but the adjustment procedure could not function as the system depended crucially on
the fixed convertibility rate between the dollar and gold. As a result the system dis-
solved between 1968 and 1973. The final turning point was the "temporary" suspen-
sion of the dollar's convertibility into gold in August 1971, declared unilaterally by
U.S. President Richard Nixon. All attempts to re-establish fixed exchange rates in the
following months failed, so by March 1973 all major currencies floated against each
other.
Although the World Bank and the IMF had been created specifically to make the
system of Bretton Woods function smoothly, especially to prevent ...