Credit controls as an escape from the trilemma. The Bretton Woods experience†

Eric Monnet (1, 2, 3)

1 Banque de France - Banque de France
2 PSE - Paris School of Economics
3 PJSE - Paris Jourdan Sciences Economiques

The Mundell “trilemma” is widely used to discuss capital controls and monetary policy autonomy under Bretton Woods. Without denying its usefulness, this paper highlights two facts at odds with assumptions underlying the “trilemma” argument. First, conflicts between internal and external objectives were uncommon. Second, the use of quantitative credit controls allowed central banks to disconnect their interest rate from their monetary policy stance. This was considered by contemporaries as a way to escape international constraints. Capital controls were imposed to complement credit controls. Interest-rate spreads were neither a good measure of capital controls nor of central bank autonomy.

Domaines: Economies et finances

Eric Monnet. Credit controls as an escape from the trilemma. The Bretton Woods experience†. European Review of Economic History, 2018, 22 (3), pp.349-360. ⟨10.1093/ereh/hex029⟩. ⟨halshs-02973024⟩