Reconstructing Humpty Dumpty

Abstract

It makes little difference whether one thinks of the world's monetary system as half destroyed or half preserved. Whether we build a new system, or remodel the old, an urgent job is ahead. Three hundred billion dollars of world trade, with a recent growth rate of over 10 per cent, ride on the success of this effort. Even the United States, whose interest in trade is small, found during the second quarter of 1971 that the deterioration of its net exports implied a cut in the real growth of GNP by about one third. And this does not allow for reduced earnings of foreign subsidiaries if a world recession should strike, nor for possible injury to these subsidiaries if foreign countries should vent reprisals upon them for United States policies they may not like. The crisis has taught us a good deal about what components of the system can be kept, what new components are readily acceptable, and what new ones will have to be designed. But it is still uncertain whether financial technology is capable of designing certain parts of the system so that they can operate under the pressures of the political and economic environment.