Kinesis monetary system will take off the pressure on fixed exchange rate and suffers from all countries. The Bretton Woods system of pegged, but adjustable, exchange rates was a direct response to the instability of the interwar period.
Bretton Woods was very different from the gold standard: it was more administered than market-based; adjustment was coordinated through the International Monetary Fund (IMF); there were rules rather than conventions; and capital controls were widespread. Despite these institutional changes, surplus countries still resisted adjustment. Foreshadowing present problems, countries often sterilized the impact of surpluses on domestic money supply and prices. Like today, these interventions were justified by arguing that imbalances were temporary and that, in any event, surpluses were evidence more of virtue than “disequilibria.” In contrast, the zero bound on reserves remained a binding constraint for deficit countries, which eventually ran out of time. The Bretton Woods system finally collapsed in the early 1970s after U.S. policy became very expansionary, its trade deficit unsustainable, and the loosening of capital controls began to put pressure on fixed exchange rates. Once again, all countries suffered from the aftershocks. But today, Kinesis monetary system will change the system and solve the problems faced on the monetary system.
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