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Chapter 5 Ambiguous Aspects of Bretton Woods CanadianExchange-RatePolicyintheMarshallSystem, 1950–1962 Eric Helleiner Between 1950 and 1962, Canada was the only developed country to float its currency against the U.S. dollar, directly contravening commitments articulated in the International Monetary Fund (IMF, or Fund) Articles of Agreement. This experience has usually been relegated to a footnote in histories of the Bretton Woods system; Canada is generally portrayed as a relatively minor player, and the circumstances that encouraged its float are portrayed as unique. In this chapter, I suggest that the Canadian float has, in fact, much greater significance for our understanding of the postwar international economic order. The Canadian float was initiated during the Marshall system, which was distinguished in two respects from the short-lived Treasury system that preceded it. First, official liquidity was provided—for the most part, directly by the U.S. government—on a much more generous basis than previously. Second, there was much greater accommodation of the preferences of various governments in areas such as the suspension of convertibility, the use of capital controls, and exchangerate adjustments. The international acceptance of the Canadian float was the most dramatic example of this second feature of the Marshall system. For this reason, For research funding, I am grateful to the Social Sciences and Humanities Research Council of Canada and the Canada Research Chair Program. For their very helpful comments, I also thank the workshop participants and particularly David Andrews, Benjamin Cohen, and Louis Pauly. Some portions of this chapter have been published in Eric Helleiner, Towards North American Monetary Union? The Politics and History of Canada’s Exchange Rate Regime (Montreal: McGill-Queen’s University Press, 2006). the Canadian situation is less an historical oddity than an important demonstration of the character of the international monetary system during this period, a system that was particularly open to exceptions. The Canadian experience in this period was significant in another important respect as well. This book distinguishes between the enduring core of the Bretton Woods economic order—involving the embedded liberal commitment to reconciling national policy autonomy with an open and multilateral trade system—and the more transient and somewhat ambiguous provisions of the Bretton Woods monetary system. As this chapter demonstrates, this distinction was at the very heart of the debates about the Canadian float of the 1950s. Because the Canadian government had been a major supporter of the Bretton Woods negotiations, IMF staff initially saw the decision by Ottawa to float the Canadian dollar as a serious challenge to the legitimacy of the Bretton Woods monetary system. But Canadian officials successfully recast their decision as an innovative way for them to support the deeper embedded liberal goals of the underlying Bretton Woods economic order. Indeed, they argued that the float was superior to two of the monetary mechanisms that had been specifically endorsed at Bretton Woods for this purpose: capital controls and the adjustable peg exchange-rate regime. Other countries came to accept the legitimacy of these arguments as justifications for the Canadian float; and much the same arguments would later reappear at the time of the more generalized move to floating exchange rates in the early 1970s. As a result, far from being an unusual historical anomaly, the Canadian experience was important in establishing more completely the meaning and content of the commitments undertaken at Bretton Woods and it did so in a manner that foreshadowed the future evolution of international monetary relations. Indeed, Canadian policymakers in this period pioneered a set of policy choices and supporting arguments that would later play a critical role in the self-renewal of the broader Bretton Woods economic order that took place in the wake of the upheavals of the early 1970s. Canada’s Float as a Challenge to IMF Legitimacy? The Canadian decision to float its currency in September 1950 was almost completely unexpected.1 Few analysts inside or outside the country had anticipated the decision. Even the Canadian private bankers, who were suddenly called on to create a market in foreign exchange for the first time since 1939, were caught off guard and found themselves scrambling to find older staff who remembered the techniques of foreign-exchange trading.2 The decision was particularly surprising to IMF officials because it left Canada in contravention of the IMF Articles of Agreement (specifically Article IV, section 1. A. Wynne Plumptre, Three Decades of Decision: Canada and the World Monetary System, 1944–75...

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