International Money Flows and Currency Crises

The author had already become involved with the subject of this book when President Nixon suspended the convertibility of the dollar on August 15, 1971. This declaration was equivalent to an official admission of the previously evident failure of the inter- national monetary system established in Bretton Woods after long and difficult negotiations. Although the real reasons for this failure are much deeper and more complex, the immediate cause was the tremendous outjlow of money from the United States to Europe and Japan. Never before had economic history recorded a currency movement of such magnitude, although during the periods preceding the devaluation of the French franc and the re- valuation of the Deutsche Mark (Le., by the end of 1968 and mostly in 1969), and particularly at the beginning of 1971, the in- ternational flow of money grew to such huge proportions as to alm ost traumatize the economic and financial circles of developed capitalist countries. These economic and financial circles correctly foresaw that the ever growing and hardly controllable volume of currency flow could seriously endanger the already precarious balance of the international financial system and perhaps even upset it. This brief analysis, in contrast to many other predictions of cur- rency developments, holds true for a longer period as well.