Remittances at Bretton Woods

Michael Pettis is known as one of the most astute observers of the Chinese economy. He is Professor of Finance at Guanghua School of Management, Peking University. In the November 12 issue of his China Financial Markets newsletter (link is to his related Web site, not to the newsletter itself), he writes these reflections on The Bretton Woods Transcripts:

For those who are interested in this sort of thing (and I confess I most certainly am), transcripts of the Bretton Woods conference in 1944 have recently been discovered and are being published on Kindle.

…One part of the debates that I found especially interesting was a debate on workers’ remittances. The USSR had insisted during the meetings that workers remittances be included in the capital account, and so subject to capital controls. Several other countries, led by China, were opposed. The latter won the debate, and today, of course, workers’ remittances are included in the current account.

Among other things this shows just how wobbly some of the capital account/current account distinctions are. I think from a political point of view workers’ remittances should certainly not be subject to capital controls, but otherwise I think conceptually they really belong in the capital account, although because they tend to be countercyclical there certainly are good reasons for suggesting that they should be treated differently from other items in the capital account. I would also argue that interest payments and dividends, which are today part of the current account, should be part of the capital account although again, because they are nominally fixed and not subject to changes in investor sentiment, perhaps they don’t fit wholly comfortably in the capital account.

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About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.