This essay was written in the summer of 1967; its purpose was to explain the nature of the international monetary system and how it functioned up to mid-1967 as a background to the consideration of various possible improvements in the system. Hence, it deals with the system as it has been-not as it might become. While I have made drafting changes and clarifications, I have deliberately not extended the paper to cover the events of the past year so as to avoid discussion of matters about which there are differences in official views. My objective is to analyse the system and not to enter into the political problems of its future evolution.
More specifically, the essay aims to distinguish between difficulties arising from inadequate adjustment policies of individual countries and difficulties arising from a disequilibrium 1 in the system as a whole, which concerns the relationship between gold and the dollar. The analysis is focused on the persistent deficit in the balance of payments of the United States and is designed to bring out its underlying and transient causes.
The present system is usually called the gold exchange standard. As it emerged from Bretton Woods and as it has functioned in the postwar period, however, it is more to the point to call it the gold-dollar system.
* From Essays in International Finance, no. 70, Princeton, Princeton University Press, 1968, pp. 1-20, 46-7, abridged.