International Monetary Arrangements Research Articles

Globalization/deglobalization: lessons from liberal monetary orders.

Economic globalization never proceeded in a smooth steady trajectory. The current international economy, organized around liberal principles, faces potential problems unleashed by the COVID-19 pandemic. Two popular theoretical approaches offer varying reasons for the survivability of the contemporary order. One stresses the benefits associated with participating in liberal international orders, claiming such arrangements are essentially self-sustaining. The rival view emphasizes the uneven distribution of gains, emphasizing the role of leadership, especially for dampening crises. To examine the support for each argument, I examine the evolution of international monetary arrangements. International monetary orders lie at the heart of liberal international economies; no prior liberal monetary order has proven self-sustaining. Liberal international monetary sub-orders depend upon leadership as much as cooperation for their survival—leaders exert efforts to shape followers' actions so long as the leader draws sufficient benefits to make such efforts worthwhile. The economic disruption caused by the COVID-19 pandemic provides the latest illustration of this point, though these arguments also suggest experiences across issue-areas will vary.

How does the ZLB affect the properties of alternative exchange rate systems?

Abstract We use a standard, two-country Dynamic Stochastic General Equilibrium (DSGE) model with multiple shocks and a Taylor rule to study the effects of the Zero Lower Bound (ZLB) under alternative international monetary arrangements. Whether the ZLB constraint plays a stabilizing or destabilizing role depends on the exchange rate regime and the type of shock. Different shocks may favor different regimes, and the ZLB may lead to a reversal of the ranking of the regimes for some shocks, especially domestic ones. Notwithstanding such individual shock reversals, when considering the groups of external or domestic shocks or all shocks together in a typical economy that stochastically alternates between the ZLB and the non-ZLB states, we find that the introduction of a ZLB constraint does not by itself suffice to make policymakers rethink their choice of the exchange rate regime.

Finance Unchained: The Political Economy of Unsustainability

This article explains how the liberation of finance from the Bretton Woods constraints imposed after World War II has shaped the resulting “neoliberal” political economy into a political economy that is inhospitable, if not hostile, to the kind of regulation and public investment necessary to address the climate emergency and other environmental problems, and has contributed to levels of inequality that constitute a social crisis in their own right. Using the United States as an example, the author explains how mobile finance and the accompanying neoliberal ideology impose “checks” on a range of governmental policies, and moreover, have led to inadequate levels of public and private investment, both generally and in areas crucial to reduce carbon emissions. The article concludes with a discussion of how a new set of international monetary and financial arrangements along the lines that Keynes originally envisioned could support a “Green New Deal” sustainability strategy or, absent such an international agreement, how capital controls imposed nationally could constitute a temporary solution to the problems of insufficient regulation and investment.

A 'Barbarous Relic': The French, Gold, and the Demise of Bretton Woods

Since the time of the French Revolution, when a gold standard saved the nation from hyperinflation, France has wanted gold to be the linchpin of international monetary arrangements. And, indeed, from the earliest use of bills and coins as money until August 1971, money was, in principle at least, a claim on gold. At Bretton Woods, New Hampshire, where in July 1944 730 delegates from 44 countries met to create the post-war international financial order, the French argued that gold -- which John Maynard Keynes had described two decades earlier as a “barbarous relic” -- was the key to international monetary stability. The French attachment to gold was rooted at least as much in politics as in economics, in particular in France’s efforts to take international economic power away from the United States and lodge it in a stronger and more powerful France. On Sunday, August 15, 1971, Richard Nixon announced that the United Sates was no longer willing to exchange dollars for gold. In a few short sentences, the president had dismantled the existing international monetary system and abrogated the agreements of Bretton Woods, which had required each country to maintain its currency’s exchange rate within a specified value of gold. No one knew exactly what this would mean for the international monetary system, but the French were especially unhappy. France soon became the principal antagonist to the United States in the transformation of the international monetary system from fixed to floating exchange rates. This paper, to be published as a chapter in Naomi Lamoreaux and Ian Shapiro, eds., The Bretton Woods Agreement together with Scholarly Commentaries and Essential Historical Documents (forthcoming, Yale University Press), traces France’s efforts to maintain a central role for gold in international monetary arrangements until 1976 when the IMF Articles were amended to reflect the new reality of floating exchange rates.

A Lego Approach to International Monetary Reform

The international monetary arrangement that has prevailed for the last 40 years has been a disaster. During four waves of banking crises, with most of the affected countries also experienced currency crises. These crises led to recessions and extended periods of slow growth. Every country that experienced a banking crises previously had a boom and an increase in investor demand for its securities, which led to an increase in prices and usually an increase in currency prices. These booms morphed into banking crises when investment inflows slowed, which often occurred when lenders recognized that the external indebtedness of these countries was increasing at rates too rapid to be sustainable. This pattern in cross border investment inflows is very different from the one advanced by proponents of floating currencies in the 1950s and 1960s. Their articles have become the monetary constitution for the currency arrangement that has prevailed since the early 1970s. They claimed that if currencies were free to float, deviations between the market prices of currencies and the long-run average prices would be smaller because changes in currency prices would track differences in national inflation rates, but instead the deviations have been much larger. They claimed there would be fewer currency rates, but instead there have been many more and most have occurred with a banking crisis. Proponents claimed that each country would be more fully insulated from shocks in its trading partners, instead countries have been pummeled by variability in inflows. The primary objective of international monetary reform is to dampen sharp cross border investment inflows. The Lego-approach to reform involves selections from two menus. One involves the institutional innovations or frameworks for implementing measures to reduce the sharp variability in cross border investment inflows. The more ambitious institutional innovations involve a new institution like the International Monetary Fund (IMF) or a rejuvenation of the IMF. The least ambitious arrangement involves a decision by countries to follow similar policies to dampen the scope for cross border investment inflows.

Devaluation-bias and the Bretton Woods system

The exchange-rate system established at Bretton Woods was intended to combine a fixity of the par-value of each member’s currency in the short run with a flexibility of the parity in the longer-run. Because of this emphasis on the fixity of the spot rates and of the parity in the short run, the Fund’s par-value system can be regarded as a variant of fixed exchange rates. The presumption that there is a devaluation-bias in present international monetary arrangements rests primarily on the hypothesis that under any variant of a fixed exchange rate the deficit country is more likely to be forced unwillingly to devalue than the surplus country is to be forced unwillingly to appreciate. The present paper considers the validity of the presumption that a devaluation-bias does exist under the Fund’s system of the adjustable peg. The author reviews the actual experience among Fund members in making changes in the par-value and then considers the analytical and statistical evidence which might throw light on this experience.

Changes in the International Economic Order after the Global Financial Crisis

Changes in the International Economic Order after the Global Financial Crisis

International monetary arrangements for the 21st century—Which way?

This paper examines some competing views on currency regime choice by applying the dynamic multi-state Markov (MSM) model to the regime transitions of 166 countries from 1980 to 1999. The findings suggest that the bipolar view is valid only in the long run and for a reason quite different from what the proponents had imagined, namely, economic development rather than crisis-driven exits. The estimated steady-state probabilities even predict that a unipolar fixed exchange rate system could emerge in the long run. Despite some divergence, both de jure and de facto regime data corroborate the key findings.

‘Why Economists Disagree’: A Case Study in Consensus Building

The title of this paper – “Why Economists Disagree” – takes its name from Fritz Machlup’s speech before the American Philosophical Society on November 12, 1964, five months after the fourth Bellagio Group conference of thirty-two non-governmental economists, convened by Machlup to rethink the international monetary system, and three months after the publication of the Group’s final report: International Monetary Arrangements: The Problem of Choice. Report on the Deliberations of an International Study Group of 32 Economists. In his speech, Machlup explained his decision to bring together economists from eleven countries, many of them chosen because they were well-known advocates for divergent, often feuding, schools of thought on the problems and solutions to problems facing the international monetary system in the 1960s, for an “inquiry into the sources of disagreement on international monetary prescriptions” (Machlup 1965, p.1).How did Fritz Machlup and the group of economists he assembled come to exert so much influence on exchange rates and adjustment issues? The current paper addresses this question, looking at Machlup’s own writing on the subject, his organization of the Bellagio Group conferences, the close working relationship Machlup built with the deputies of the Group of Ten, and the broad platform of joint conferences, papers and books that Machlup created to promote the work of the Bellagio Group.

Central Banks: Between Internationalisation and Domestic Political Control

The paper examines the exercise, the efficiency, and the legitimacy of the monetary policy-making process. The goal of central bank autonomy in recent times is the outcome of a demand for price stability. The realisation of autonomy is also a consequence of the fragmentation of national decision making, in federal systems but also in regional and international monetary arrangements. Economic and financial crisis changes the political economy, and produces a transition from seeing the central bank as producing a general or universalisable good (price stability) to interpreting monetary policy as fundamentally a tool for redistributive or factional policies. The latter will only work in the framework of national policy.

Currencies, competition, and clans

We present a theoretical and empirical analysis of stable coexistence among the world's anchor currencies (G3): the dollar, euro and yen. The theoretical model presented in this paper builds on a model of spatial competition and rests on a set of assumptions related to the behavior of central banks, the working of exchange rate regimes, the geography of money, and international monetary arrangements. We show that stable coexistence in the sense of the pure-strategy equilibrium derived in our model is attainable in the case of two anchor currencies, but not in the case of three. The empirical evidence provides support for the assumptions and conclusions of the model.

Just International Monetary Arrangements

International monetary arrangements - the practices and rules governing the creation, distribution, and management of money and credit in the world economy - have received little attention from philosophers concerned with international distributive justice. A convincing account of the requirements of greater international distributive justice demands a description of such arrangements. Current international monetary arrangements at times have consequences that are difficult to justify morally. Empirical reasoning, normative reasoning and institutional imagination must be employed together in order to identify alternatives that are desirable and realizable.

Guidelines for Submission to Ethics & International Affairs

The aim of Ethics & International Affairs, the journal of the Carnegie Council on Ethics and International Affairs, is to help close the gap between theory and practice (and between theorists and practitioners) by publishing original essays that integrate rigorous thinking about principles of justice and morality into discussions of practical dilemmas related to current policy developments, global institutional arrangements, and the conduct of important international actors. Theoretical discussions that originate in philosophy, religion, or the social sciences should connect with the interests of journalists, activists, policymakers, and citizens who are primarily concerned with assessing and reforming specific policies, as well as existing rules and institutions such as the United Nations, the World Bank, and the International Monetary Fund; arrangements governing trade, environmental protection, and the use of force; and the International Criminal Court and ad hoc tribunals that address genocide and past societal injustices.Recent issues of Ethics & International Affairs have contained articles on international monetary arrangements, immigration restrictions, the preventive use of force, global health, and climate change.

Evropská měnová unie z post-keynesovské perspektivy

Paper deals with the European Monetary Union from perspective of Post Keynesian school of economic thought. It discusses separately arguments often proposed by mainstream economists. After the brief introduction, which highlights main differences between mainstream and Post Keynesian economic theory, work deals in sequence with trade argument often found in discussion about monetary unification, monetary issues mainly with the role of European Central Bank and lastly, work appraises European Monetary Union from international monetary arrangement perspective proposed by Post Keynesian economists. Based on this evaluation, work concludes stating that Post Keynesian economists are more likely not to be overenthusiastic with European monetary unification.

GLOBAL INSTITUTIONS AND RESPONSIBILITIES

Notes on Contributors. 1 Introduction: Christian Barry and Thomas W. Pogge. Part 1: Aims. 2 Global Justice Without End?: John Tasioulas. 3 Assessing Global Poverty and Inequality: Income, Resources, and Capabilities: Ingrid Robeyns. 4 Boundary Making and Equal Concern: Kok-Chor Tan. 5 Theorizing International Fairness: Nancy Kokaz. Part 2: Arrangements. 6 Three (Potential) Pillars of Transnational Economic Justice: The Bretton Woods Institutions as Guarantors of Global Equal Treatment and Market Completion: Robert Hockett. 7 Network Power and Global Standardization: The Controversy over the Multilateral Agreement on Investment: David Singh Grewal. 8 The World Trade Organization and Egalitarian Justice: Darrel Moellendorf. 9 Whose Sovereignty?: Empire Versus International Law: Jean L. Cohen. 10 Human Rights and Global Health: A Research Program: Thomas W. Pogge. 11 Just International Monetary Arrangements: Sanjay G. Reddy. 12 The Ownership Model of Business Ethics: David Rodin. 13 The Preventive Use of Force: A Cosmopolitan Institutional Proposal: Allen Buchanan and Robert O. Keohane. Part 3: Responsibilities. 14 Applying the Contribution Principle: Christian Barry. 15 Global Justice and the Logic of the Burden of Proof: Juha Ra Ikka . 16 Extreme Poverty and Global Responsibility: Bashshar Haydar. 17 The New Liberal Imperialism: Assessing the Arguments: Jedediah Purdy. Index

The Significance of the Euro in the International Monetary System

It is a great pleasure for me to be here and I thank you, Robert Isaak, for that wonderful introduction; it was very interesting. I am of course going to talk about the euro, but by way of preface, I will tell you about some of my recent journeys. Two weeks ago I was in Spain at the Euro Forum Conference in the El Escorial Palace outside Madrid, the splendid mausoleum/palace/monastery built by Philip II of Spain to celebrate the occasion of his victory in the Battle of San Quentin on St. Laurence's Day in 1557. This was a conference dedicated to the occasion of the Spanish presidency of the European Union, a report of progress on past commitments and on the challenges ahead. The Lis bon Summit Conference in March 2000, spearhead ed by Prime Minister Tony Blair of the UK and President Jose Aznar of Spain, set the goals of improving the employment performance of the EU and making it the most competitive area in the world by the year 2010. After that conference, I came west to Havana, the home of cigars and Fidel Castro, to present a paper at the third of Castro's Conferences on Glob alization and Development Problems that he had initiated in the year 2000. Beside myself there was my colleague from Columbia University and the Nobel Laureate in Economics for 2001, Joe Stiglitz. We spent altogether about fifteen hours with Castro over three days, talking and listening over meals and presentations. Stiglitz and I each had a two hour slot at the beginning of the conference. Stiglitz focused on the problems of globalization and the errant policies of the international institutions. I focused on international monetary arrangements, currency areas, power centers and the need for a global currency. Fidel then spoke for an hour and a half, after which we had dinner with him and there followed another two hours of discussion. At about 9:30 p.m., he excused himself to see Senator Bar bara Boxer and the California delegation, which, he said, were interested in helping to get the embargo on Cuba lifted. After Cuba, I went back to Europe, to London, to inaugurate a new exhibit at the British Museum. The exhibit, called Brief Lives, did not seem to be my cup of tea, but the Chairman of the Museum, Graham C. Greene (nephew of the great novelist), explained that the sub-title was Currencies and Nationalism in Modern Europe. The currencies of twelve of the fifteen members of the European Union were going to self-destruct within a couple of months and the staff had prepared an exhibit to celebrate their passing into history. Were the lives of European currencies so brief? There is a widespread belief that they had long lives. The reason I think is that the names for cur rencies are distinct from the actual pieces of paper or coins. Some of the names have existed in the lan guage for thousands of years and have become part of the national consciousness. The Greek obol for instance means digit, and drachma means handful. So the drachma was a handful of six obols. You could repeat such stories for all the currencies. Our word is derived from the surname of Juno Moneta, or Juno the Warner, a consort of Jupiter, whose duty it was to warn the Romans that if they fought only just wars, they would never lack for money to finance them. The name and symbol of the pound goes back to Roman times. But the pound as a medium of exchange (as opposed to a unit of account) is not nearly so old. The pound coin goes back only to the reign of King Henry VII, the first Tudor king, who succeeded Richard III, the hunchback. The first pound coin was a big, but very thin coin, first cre ated at the end of the 15th century. Its successor, the pound or the sovereign in the 19th century was much smaller but thicker. How did the pound originate? We have to start with the Roman Empire. The Romans had two words for pound: pondos, which comes from the

Developing Just Monetary Arrangements

International monetary arrangements–the practices and rules governing the creation, distribution, and management of money and credit in the world economy–have received little attention from philosophers concerned with international distributive justice. A convincing account of international distributive justice requires a description of how these arrangements should function. International monetary arrangements currently appear to have consequences that are incompatible with a global egalitarian conception of distributive justice.There are at least three categories of questions– relating respectively to money supply, exchange rates, and debt–that can be raised in the international context. First, who should have control over key monetary decisions, such as how much, and on what terms, money and credit are being supplied within each monetary zone? Should this control belong to the citizens of a given monetary zone and their representatives alone? How should the benefits arising from the ability to create money be distributed internationally? Second, should the stability of exchange rates be a goal and, if so, how should the responsibility for maintaining stability be apportioned? When adjustment of exchange rates is required, who should bear the burdens associated with such adjustment? Third, what arrangements should govern the accumulation and discharge of debt in the international setting? In what respects should debt contracted by states be governed by different rules than debt contracted by private agents? What forms of conditionality may be imposed by creditors, such as international institutions, governments, or private lenders, as part of a just framework of international borrowing and repayment? These questions exemplify rather than exhaust the dilemmas that arise with regard to international monetary arrangements. Global egalitarians should imagine the alternative forms that such arrangements can take as elements of a realistic utopia.

Monetary Policy in Open Economies under Imperfect Information

We compare international monetary arrangements that differ in the degree of both policy activism and exchange rate flexibility in a model with policy credibility, nominal wage rigidities and unobservable shocks. Three results stand out. First, the selection of the exchange rate regime is less important than the choice of the degree of activism. Second, unlike conventional wisdom, activistic policies tend to fare worse than passive ones. And third, a passive, fixed exchange rate system has good properties for macroeconomic stability. The results suggest that when the monetary authorities operate under conditions of incomplete information, a passive, fixed exchange rate regime represents a good overall choice.

International monetary arrangements: the European Union and the euro

Monetary unification within Europe appears to be on target. Eleven nations pegged their currency to the euro in 1999. The euro‐zone is experiencing varying levels of growth related to GDP. Balancing policy for 11 nations will be difficult. The true test will take place when asymmetric shocks hit one or several of the nations and unemployment rises to unmanageable levels forcing the European Union and European Central Bank to make tough decisions. Cultural issues and national identities are ever present. Optimum currency areas and comparative advantage discussed. The paper is divided into four major sections – reasons for unification, benefits, issues and conclusion.

New international monetary arrangements and the exchange rate

AbstractI show how to implement in a simple manner the comparison of alternative monetary policy rules in a two‐country model of the new generation. These rules are: Full Price Stability, Taylor, Fixed and Managed Exchange Rates. I find, first, that the exchange rate dynamic is non‐stationary unless some form of management is undertaken by the respective monetary authorities of the two countries. However, eliminating the excess volatility of the exchange rate does not significantly alter the overall macroeconomic volatility. Second, a floating exchange rate regime based on a Taylor‐type rule seems to better approximate the full price stability benchmark, but at the cost of boosting interest rate volatility. In this respect limiting exchange rate flexibility is desirable. Finally, in all cases the model delivers positive cross‐country correlation of interest rates but negative cross‐country correlation of output. Copyright © 2001 John Wiley & Sons, Ltd.