International Liquidity: Toward a Home Repair Manual

Abstract

T HE successful completion of European recovery in the 1950's brought to the western industrial countries the least restricted regime of international trade and payments in many decades. Its very freedom, however, has revealed a number of problems in maintaining consistent domestic and international economic policies, and in keeping the international policies of different countries consistent with each other. Increasingly, these problems have seemed to center on the matter of international reserves and liquidity. Many plans have emerged for changing our reserves and liquidity arrangements. The variety of proposals at hand reflects more than just divergent views on how to handle a given problem. It also stems from differing diagnoses about the exact nature of the liquidity problem, differing prescriptions for related features of international economic policy, and, finally, differing hunches about the political acceptability of the changes proposed. This paper aims not at cluttering the scene with a new proposal, nor even a new summary of existing plans.1 Rather, it turns to the problem of picking among the alternatives. Once the substantive issues are settled regarding the nature of the difficulty and the future network of international monetary arrangements, then assembling the optimal plan becomes a task for the technicians. What follows is an attempt to classify, first, the diagnoses of present ills and, second, the underlying substantive issues. It is an essay, not on the efficient solution, but on the efficient search procedure.