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This paper analyses the Belgian monetary and exchange rate policies at the time of Bretton Woods. It sheds light on the groping adjustment process by which internal economic policies are hit by or adapt to the external constraints. In 1944, an ambitious monetary reform laid down the economic policy objectives that remained in force for two decades,...
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Citations
... According to Maurice Frère (1960), gold reserves were enough to maintain the parity and the government pushed for the devaluation for fiscal reasons only. During these events, the Bank of Belgium clearly expressed a commitment to gold standard practices (Cassiers and Ledent 2006) and the postwar law of the central bank did not abandon the reference to a legal requirement of gold reserves equal to 30 percent of notes issue (Aufricht 1967). In many respects, Maurice Frère was a man of the gold standard. ...
Why did monetary authorities hold large gold reserves under Bretton Woods (1944–1971) when only the US had to? We argue that gold holdings were driven by institutional memory and persistent habits of central bankers. Countries continued to back currency in circulation with gold reserves, following rules of the pre-WWII gold standard. The longer an institution spent in the gold standard (and the older the policymakers), the stronger the correlation between gold reserves and currency. Since dollars and gold were not perfect substitutes, the Bretton Woods system never worked as expected. Even after radical institutional change, history still shapes the decisions of policymakers.
... 2 See e.g. Cassiers and Ledent (2006) and Taylor (1999a). 3 See e.g. ...
This paper attempts to better understand the monetary policy decisions under the Belgian two-tier foreign exchange market during the Bretton-Woods system. Whereas this type of market organisation aimed at insulating the domestic currency from (speculative) capital flows, it is questioned whether monetary authorities did (or not) really pay attention to the free market when setting the monetary policy interest rate in practice. Using a Taylor-rule type approach, it is shown that the volatility of the spread between the two segments of the foreign exchange market has played a growing role in the interest rate dynamics over time. Moreover, a Markov switching model applied to the data provides evidence of two separate periods towards the collapse of the Bretton-Woods System, during which the monetary policy concerns have gradually changed.
