Again under Stress
In 1976 the American Enterprise Institute organized a conference to review the first three years of experience with flexible exchange rates.1 Advocacy of greater exchange rate flexibility originated in the academic community, but gradually a more receptive attitude toward floating emerged also in banking and business circles. Even those who had been apprehensive initially had to admit that the new system of flexible rates had enabled the world to adjust more easily to a series of shockscommodity boom, oil crisis, high inflation, and the severe recession of 1974-1975 -- than would have been possible under the Bretton Woods regime.
Since then the climate has changed again. The reacceleration of inflation in the United States in 1977-1979, the decline, rise, and further decline of the dollar, the emergence of higher inflation rates even in Germany and Switzerland in 1979, and the sharp increase in international liquidity in the past two years have rekindled serious doubts about the present system. Few, if any, recommend a return to a global, Bretton Woods-type system, but many feel strongly that the system of widespread floating does not perform as it was supposed to and needs to be reformed.
In the light of these developments and the resulting changes in perceptions of and sentiments toward the present international monetary system, the American Enterprise Institute decided to convene another conference, once again to take stock, to consider the alleged shortcomings of the system, and to examine some of the reform proposals.
It was proposed that the conference proceed on the assumption that the problem is not to restore a global, Bretton Woods-type system of semifixed exchange rates, but rather to explore how the present system____________________