Gottfried Haberler, “The International Monetary System after Nairobi” (1973)

Haberler’s essay reads the Nairobi meetings as confirmation that the post-Bretton Woods order had already moved beyond the official reform agenda. The Committee of Twenty still sought a negotiated restoration of monetary rules, but Haberler argues that the practical system was now one of floating or managed floating currencies, and that this improvised arrangement had preserved rather than damaged international exchange.

Nairobi has come and gone, and the international monetary system is exactly where it was before. Many currencies are floating, some in a more or less controlled fashion, and thanks to the float, world trade has continued to grow at a rapid rate.

His analysis turns on a distinction between negotiable technical issues and the deeper incompatibilities hidden beneath reform language. Questions about gold, SDRs, and reserve composition could be compromised, but “convertibility” remained conceptually and politically confused. Officials often meant the conversion of official currency balances into reserve assets, especially gold or SDRs, whereas Haberler treats ordinary market convertibility as the condition that matters most for trade. The collapse of dollar-gold convertibility did not end world commerce because currencies remained exchangeable in foreign-exchange markets.

“Convertibility” is invariably used in the “asset sense,” that is, convertibility of currencies into so-called “primary” reserve media: gold and SDRs.

This distinction lets Haberler reject the idea that renewed dollar asset convertibility would by itself restore discipline. The United States had accumulated liabilities far beyond its reserve assets, but the deeper problem was not a missing technical rule; it was the unwillingness of modern governments to accept unemployment and deflation for balance-of-payments reasons. Fixed rates require countries either to import inflation, impose controls, or alter parities. In a world of high and divergent inflation, Haberler sees the last option as unavoidable.

Floating, in his argument, is not a cure for inflation. It is a means by which countries can avoid being forced to share the inflationary policies of others. Monetary and fiscal restraint remain necessary, but fixed exchange rates transmit expansionary pressures internationally and make adjustment dependent on delayed, politically painful parity changes.

If any country wishes to stay out of the world inflation, floating is a necessary but not sufficient condition.

Haberler therefore reverses a common charge against floating. Floating did not create the monetary disorder of the early 1970s; rather, inflationary policies and incompatible national objectives made stable parities untenable. He accepts that exchange markets may overshoot and that official intervention may sometimes smooth temporary disturbances. But he distinguishes such “managed” floating from “dirty” floating through multiple rates, controls, and manipulative intervention. The IMF’s appropriate role, then, is not to force a premature return to par values, but to supervise floating practices and discourage exchange controls or destabilizing official action.

The essay also treats the dollar standard as historically finished but institutionally residual. Many countries still held large dollar reserves or pegged to the dollar, yet Haberler doubts that a reconstructed dollar-centered convertibility system would be credible. The adjustment problem that destroyed Bretton Woods would remain: deficit countries resist contraction, surplus countries resist appreciation, and controls merely postpone real adjustment while distorting trade and capital flows.

For Haberler, the adjustable-peg alternative is especially vulnerable because discrete parity changes invite speculation. If parity changes are rare, they become crises; if they are frequent and small, the system begins to resemble floating. This is why he treats floating not as ideological laissez-faire, but as the more realistic institutional form for a world lacking common anti-inflationary discipline.

Even those who, in principle, advocate fixed exchange rates should realize that with inflation rates in the developed industrial countries clustering around 9 percent, let alone higher rates elsewhere, widespread floating is unavoidable.

The conclusion is both skeptical and pragmatic. Haberler does not expect the July 1974 reform deadline to yield a durable monetary constitution, and he does not regard that failure as disastrous. The essay’s significance lies in its early defense of floating as a workable post-Bretton Woods regime: imperfect, requiring rules against abuse, but preferable to restoring a par-value system whose inflationary bias and political infeasibility had already been exposed.