Barry Eichengreen 235In the first period, the most important source of incremental liquidity was dollar
reserves. Between 1949 and 1958, when global reserves rose by 29 percent, less
than one-third of the increment took the form of gold and one-fifteenth was in
quotas at the IMF. The role of sterling as a reserve currency was limited almost
exclusively to Commonwealth members and former British colonies that had
traditionally held reserves in London and traded heavily with Britain. Consequently,
the accumulation of dollar balances accounted for roughly half of incremental
liquidity in the first decade of Bretton Woods.
In one sense, U.S. dominance of international markets facilitated the provision
of liquidity. At the end of World War II, the United States had amassed 60
percent of the world’s gold stock; at $35 an ounce, this was worth six times
the value of the official dollar claims accumulated by foreign governments by
- There was little immediate question, given U.S. dominance of global
gold reserves, of the stability of the gold price of the dollar and hence little
hesitation to accumulate incremental liquidity in the form of dollar claims.
But in another sense, U.S. international economic power in the immediate
postwar years impeded the supply of liquidity to the world economy. Wartime
destruction of industry in Europe and Japan left U.S.-manufactured exports
highly competitive in world markets and rendered Europe dependent on U.S.
capital goods for industrial reconstruction. The persistent excess demand for
U.S. goods tended to push the U.S. balance of payments into surplus, creating
the famous “dollar shortage” of the immediate postwar years. While U.S.
hegemony left other countries willing to hold dollar claims, it rendered them
extremely difficult to obtain.
Various policies were initiated in response to the dollar shortage, including
discrimination against dollar area exports, special incentives for European and
Japanese exports to the United States, and a round of European currency devaluations
starting in September 1949. Ultimately the solution took the form of two sharply
contrasting actions by the hegemon: Marshall Plan grants of $11.6 billion between
mid-1948 and mid-1952, and Korean War expenditures. Largely as a result of
these two factors, U.S. trade surpluses shrank from $10.1 billion in 1947 to $2.6
billion in 1952; more important, U.S. government grants and private capital outflows
exceeded the surplus on current account. By 1950 the U.S. balance of payments
was in deficit and, after moving back into surplus in 1951–52, deficits returned to
stay. Insofar as its singular economic power encouraged the United States to
undertake both the Marshall Plan and the Korean War, hegemony played a significant
role in both the form and adequacy of the liquidity provided in the first decade of
Bretton Woods.
Between 1958 and 1969, global reserves grew more rapidly, by 51 percent,
than they had in the first decade of Bretton Woods. Again, gold was a minor share
of the increment, about one-twentieth, and IMF quotas were one-eighth. While
foreign exchange reserves again provided roughly half, Eurodollars and other
foreign currencies grew in importance: their contribution actually exceeded that
of official claims on the United States. In part these trends reflected rapid growth
in Europe and Japan. More important, they reflected the fact that starting in 1965
the value of foreign government claims on the United States exceeded U.S. gold