THE BIZARRE PROPOSALS OF DR. BERSTEIN FOR INTERNATIONAL MONETARY REFORM

Abstract

SUMMARY The newest and most imaginative part of Dr. Bernstein's proposals for a reform of the monetary system consists in a new method of opening reserves by central banks: the reserve unit. The reserve unit is a synthetic currency composed of eleven currencies of the Group of Ten and of Switzerland. The proportions would be fixed by an agreement (probably according to the ratios of the countries concerned at the IMF). Each of these eleven countries would be obliged to hold within its reserves an amount of reserve units which is a constant relation of its assets in gold. The two main advantages of this proposal are: (1)such claims towards rich countries would be accepted by central banks; and (2)the non-existence of any repayment obligation, which would destroy the additional liquidity necessary in order to meet the growing requirements of the international monetary system. The main disadvantages are: (1)the difficulties which would result because of unequal proportions between newly created reserve units and their retention by central banks; This reform would even enhance the inequality and the inflationary potential of the present system as it would go together with an extension of the IMF-ratios, with an automatisation of credit allowances of the Fund, and bilateral swap-agreements would continue, etc. Therefore it would not remove at all the erratic character and the sources of crises of the present system by a creation of new reserves, but would only lend help against deflationary difficulties—but not against inflationary ones—which the new system could promote itself.