Interwar inflation trauma made floating exchange rates widely unthinkable

Evidence

The rejection of floating exchange rates was equally strong, in particular because the short experience of run-away inflation in the 1920s were interpreted as causally responsible for the Great Depression. Economists argued against the dangers of competitive devaluation and speculative, destabilizing capital movements. Nurkse captured the Zeitgeist when he wrote that “if there is anything that the inter-war experience has clearly demonstrated, it is that paper currency exchanges cannot be left free to fluctuate.” To do, he continued, “would almost certainly result in chaos.” Thus the belief underpinning the Bretton Woods system was that the stability of the international monetary and trade order could only be guaranteed through fixed exchange rates, which had to be managed by central banks—with the support of the International Monetary Fund (IMF)—and through deliberate interventions in currency markets. — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 418

Categorization

• XREF: connects to: Neoliberals split into warring factions over fixed versus floating exchange rates — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 41; Floating exchange rates triumphed despite starting as a minority view even among neoliberals — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 445; Floating exchange rates preconditioned the rapid liberalization of global capital — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 448 (+1 more)

Broader Connections

• Floating exchange rates were dismissed as law-breaking behavior until the 1960s #corroborates (0.85) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 427