THE BROOKINGS PANEL on Economic Activity first met twenty-five
years ago, at a moment of temporary reprieve but ominous portent for
the international monetary system. The Bretton Woods system of
pegged but adjustable dollar exchange rates had permitted the world
economy more than two decades of robust growth and generally low inflation.
But the structure was starting to unravel. The 1967 devaluation
of sterling, the 1968 divorce of the market and official prices of gold, and
the 1969 realignments of the French franc and German mark had papered
over localized tensions in the Bretton Woods order. At the same
time, those events vividly demonstrated that seemingly cherished official
commitments could easily succumb to speculative pressures. By
March 1973 the Bretton Woods system was history, and dollar exchange
rates were floating.