Canada and the IMF: Trailblazer or prodigal son?

Arbeitspapier

Canada played an important role in the postwar establishment of the International Monetary Fund (IMF), yet it was also the first major member to challenge the orthodoxy of the BrettonWoods par value system by abandoning it in 1950 in favour of a floating, market-determined exchange rate. Although the IMF heavily criticized this decision, Canada's trail-blazing experience demonstrated that a flexible exchange rate could operate in a stable and effective manner under a high degree of capital mobility. Equally important, it showed that monetary policy needs to be conducted differently under a flexible exchange rate and capital mobility. The remarkable stability of the dollar during the 1950s contradicted previous wisdom on floating exchange rates, which had predicted significant volatility. In May of 1962, Canada returned to the BrettonWoods system as a prodigal son after a period of controversial monetary policy and a failed attempt to depreciate the value of the Canadian dollar. The authors critically analyze the interaction between Canadian and IMF officials regarding Canada's exchange rate policy in view of the economic circumstances and the prevailing wisdom at the time. They also examine the impact on IMF research and policy, because the Canadian experience influenced the work of Rudolf Rhomberg as well as Robert Mundell and Marcus Fleming, resulting in the development of the MundellFleming model. Thus, the Canadian experience with a floating exchange rate not only had important implications for the IMF and the BrettonWoods system, but also for macroeconomic theory and policy in open economies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Discussion Paper ; No. 2009-1

Classification and Topics

• Classification: Wirtschaft ; Open Economy Macroeconomics ; International Institutional Arrangements ; Economic History: Transport, Trade, Energy, Technology, and Other Services: U.S.; Canada: 1913- ; Monetary Policy ; Central Banks and Their Policies
• Subject: Exchange rate regimes ; Exchange rates ; Monetary policy framework ; Geldpolitik ; Wechselkurspolitik ; Flexibler Wechselkurs ; Kapitalmobilität ; Kanada

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bordo, Michael ; Gomes, Tamara ; Schembri, Lawrence
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2009

Further information

• DOI: doi:10.34989/sdp-2009-1
• Handle: http://hdl.handle.net/10419/66939
• Last update: 10.03.2025, 11:43 AM CET