Capital Ideas: The IMF and the Rise of Financial Liberalization

By Jeffrey M. Chwieroth | Go to book overview

CHAPTER SIX

Formal Change and Informal Continuity
THE REFORM NEGOTIATIONS OF THE 1970S

BY THE 1970s even the “hollowed out” version of Keynesianism that had emerged in the 1960s was on the verge of being overturned. Capital controls still retained legitimacy, albeit a weaker form, as defined by formal IMF rules and the informal staff approach. But international monetary reform negotiations in the 1970s would further weaken the legitimacy of controls within the context of the former, though, interestingly, not the latter.

Heightened capital mobility proved to be increasingly disruptive for the Bretton Woods exchange rate system. European and Japanese officials, and the IMF management and staff, made clear their preference for using controls to preserve the system. In these circles, Keynesianism still retained support, though it was significantly weaker than in the past. In accordance with these beliefs, these actors supported an attempt to develop cooperative control measures. However, the initiative failed and the legitimacy of controls was weakened further.

The United States effectively became a norm leader for capital freedom. Controls, even the temporary variety, were cast as illegitimate, with U.S. officials promoting several initiatives and changes to formal IMF rules that sought to limit the circumstances under which their use could be considered legitimate. Yet despite formal change at the IMF there remained informal continuity.

Although U.S. officials successfully pushed through formal rule changes, their success was not matched in terms of altering the staff's informal approach, which proved resistant to adopting a new normative outlook on capital controls. This “slippage” between formal rules and the informal staff approach was due largely to the failure of these formal rule changes to resonate with the staff's prevailing beliefs that continued to lend legitimacy to controls.


INITIATIVES FOR COOPERATIVE CONTROLS

The closure of the gold window in August 1971 led many governments to float their currencies temporarily. Although controls were no longer

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