The Case for the Par-Value System, 1971

Abstract

The commitment of each member to maintain a par value and to consult the Fund before changing it constituties the heard of the international monetary system established at Bretton Woods. Economists in general have tended to be critical of these arrangements. The professional literature has stressed the role of exchange rates in clearing foreign-exchange markets and economists, in general, have preferred arrangements under which exchange values would fluctuate enough to clear exchange-markets in an orderly fashion. The one-sided support economists have given to flexible exchange-rate arrangements has largely rested upon an overwhelming professional preference for making shifts in economic resources through market processes. Perhaps elements of nationalist unilateralism may sometimes have contributed to this preference. In any case, many critics were convinced that the par-value system would inevitably lead, in a world of discordant national policies, merely to networkds of governmental controls and to financial crises. There have been frequent enough financial disturbances in recent years to confirm that such misgivings were altogether unjustified.