The Bretton Woods System frequently appears in the scholarly literature as a model for international monetary reform. This paper briefly considers its operation. It argues that the system's principal achievement, the maintenance of stable exchange rates, was the product not of the agreement finalized at the Bretton Woods Conference alone but of two exceptional features of the postwar world. One was the limited international mobility of capital. Capital controls provided policymakers room for maneuver; they softened the tradeoff between domestic objectives and defense of the exchange-rate peg. The other was singular scope for growth resulting from postwar reconstruction and catch-up. In these circumstances, countries felt little need to engage in discretionary monetary and fiscal policies that might have undermined the currency peg.
A reader turning for the first time to the literature on Bretton Woods might be forgiven for thinking that he had stumbled upon a forgotten sequel to Paradise Lost. Paradise, in the form of pegged but adjustable exchange rates, prevailed from the 1950s until 1971. Its pleasures included price
* In Thierry Walrafen (ed.), Bretton Woods, Mélanges pour un Cinquantenaire, Association d'économie financière, 1994, pp. 263-76.