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Chapter 6 Kennedy’s Gold Pledge and the Return of Central Bank Collaboration TheOriginsoftheKennedySystem,1959–1962 David M. Andrews At the end of the 1950s and in the early 1960s, the mix of policies and procedures of the Marshall system was replaced by a new and very different modus operandi. In fact, the emerging system was in many ways the mirror-image of what preceded it: capital became more mobile, fixed exchange-rate schemes became more fragile, and national central banks asserted themselves as important policy actors . The origins of these changes, plus a sketch of the resulting arrangements, are the subject of this chapter. The revival of cooperation between national central banks played an important role in this process. During the 1960s central banks, although not very independent of their governments by today’s standards, nevertheless became more independent as they increased their cooperation with one another, and they increased their cooperation with one another as they became more independent. In particular, the New York branch of the Federal Reserve System (the New York Fed) returned to I am grateful to the Federal Reserve Bank of New York for allowing me access to its archives, and to the Center for European Studies at NewYork University for its support while I was conducting research for this chapter. K. Orfeo Fioretos provided very thoughtful commentary on an early version of the argument I make here, presented as a paper in March 2003 at the 8th EUSA Biennial International Conference . The penultimate version of the chapter was discussed at the Claremont workshop in February 2006, where Benjamin J. Cohen, Barry Eichengreen, Thomas D. Willett, and Hubert Zimmermann provided especially helpful insights. both national and international prominence as a leading actor in the formulation and management of external policy. Other national central banks similarly gained enhanced leverage in policymaking and conduct, at least partly as a result of their interactions with the New York Fed. The original Bretton Woods design had been intended to export the progressive policies of the Roosevelt administration to the rest of the world, including the subordination of international finance to the state and of central banks to elected governments (following the U.S. pattern). This latter point was suggested above all by Resolution V of the Bretton Woods conference, calling for the dissolution of the Bank for International Settlements (BIS, or the Bank) and, by extension, of the network of central bank collaboration that this institution had helped to create. Over the course of the 1960s that intention was abandoned. Instead, the U.S. government relied increasingly on the Federal Reserve System, and on the New York Fed in particular, to play critical roles in managing the international monetary system. A central feature of this new reliance was acquiescence in the re-creation of the international network of central bankers. The result was an international monetary system substantially at odds with the original International Monetary Fund (IMF) framework but that has nevertheless been widely characterized since then as the heyday of Bretton Woods. We call it, instead , the Kennedy system, emphasizing the role played by President John F. Kennedy’s pledge to defend the gold value of the dollar—a promise he first made in October 1960 and then both renewed and strengthened in February 1961—in organizing the practices of the day. In the wake of this commitment, exchange-rate stability became a central feature of U.S. foreign economic policy and, indeed, of U.S. foreign policy more generally. It remained so for ten years, until the Nixon shock of August 1971. How did this extraordinary shift come about—from the relatively relaxed attitude toward exchange-rate flexibility that characterized the Marshall system period (see Eric Helleiner, chap. 5 in this volume) to a laserlike focus on the fixed element of the fixed-but-adjustable formula adopted at Bretton Woods? And how was such a dramatic change accomplished in a relatively short time? In addressing these questions, a variety of factors require attention. Material circumstances had changed; so had expert beliefs about the significance of those material circumstances . Together these material and ideational shifts set the stage for an eventual policy transformation; but substantial institutional barriers still existed to impede such a change. The analysis here therefore also draws attention to bureaucratic politics, including shifts in key personnel and in the perceived interests of rival agencies of the U.S. government, that made it possible to lock in key aspects of a dramatic shift in...

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