Zone Of Monetary Stability Research Articles

Európska menová integrácia v šesťdesiatych rokoch 20. storočia

Initiatives dealing with the creation of the European Monetary System and the zone of monetary stability in Europe emerged in the 18th century, despite the fact that greater manifestations of these considerations and efforts only started in the 1960s and early 1970s. The proof is the Marjolin Memorandum of 24 October 1962 and the Barre Plan, presented in The Hague in February 1969. In October 1970, the Commission’s initiative was followed by preparation of a plan for the progressive establishment of the Economic and Monetary Union, known as the Werner Report. Fundamentally different political views and approaches in the field of economics and integration, crisis phenomena in the Member States of the European Economic Community prevented the coordination of economic and monetary policy and the expected introduction of a common system of exchange rates. Other factors that contributed to that state were the currency crisis (1971-1973) and the oil crisis (1973-1974), as well as conflicts of interest between the French and German sides.

Solving the Currency Conundrum

This paper reviews the prospects for the exchange rate system in different parts of the world. It discounts radical changes like a single world currency and a trio of regional monetary unions: in Europe, where intergration is political as well as economic and financial, the euro should provide the basis for an expanding zone of monetary stability; in the Americas, in contrast, dollarization is likely to be the solution for countries with strong financial links to the USA that find it difficult to run an autonomous monetary policy; and in Asia, continued floating is the only plausible outcome, given the obstacles to the alternatives.(J.E.L.: F3)

Settling for Less: European Monetary System vs. European Monetary Union

In July 1978, when the heads of state of the member countries of the European Community (EC) met to chart closer monetary cooperation, the integration scheme comprised nine members: the original six and the three latecomers on the northwestern periphery (United Kingdom, Ireland, Denmark), who had joined in 1973. The main features of the envisaged European Monetary System (EMS) were set out in a resolution adopted by the European Council in December 1978. Accordingly, the second, decisive, stage would be launched two years later with the creation of a European Monetary Fund. The EMS went into operation on March 13, 1979, thereby rendering inoperative what was left of the common margins arrangement, known as the snake. The only EC member unwilling to participate in all aspects of the EMS was the United Kingdom, which to this day has remained outside the exchange-rate mechanism.' Even though the United Kingdom does not share the facility to finance intervention in the foreign-exchange market, the pound sterling is included in the basket forming the European Currency Unit (ECU). How did the European Council, which stated as the main objective of the EMS the creation of a zone of monetary stability, expect the new organization to achieve it?2 Two features hark back to the Bretton Woods system: (1) a set of fixed but adjustable exchange rates, and (2) a European Currency Unit. Each of the eight currencies was assigned a central rate expressed according to the ECU.3 These central rates, in turn, determine a grid of bilateral central rates, with the fluctuation margins men-