Credibility and adjustment: gold standards versus currency boards

It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.http://deepblue.lib.umich.edu/bitstream/2027.42/40078/3/wp692.pd

Regional Financial Arrangements and the International Monetary Fund

The rise of regional monetary arrangements poses a challenge for the International Monetary Fund (IMF)'s global surveillance efforts. This paper reviews how the IMF has responded to earlier regional initiatives, from the European Payments Union of the 1950s and the Gold Pool of the 1960s to the CFA franc zone and the European Monetary System. The penultimate section draws out the implications for monetary regionalism in East Asia

Emerging Markets and the International Financial Architecture: A Blueprint for Reform

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally - credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account

The Political Economy of Reducing the United States Dollar’s Role as a Global Reserve Currency

Many have argued that the major source of the existing global macroeconomic imbalances are the twin deficits of the United States (US). However, there is still a debate about whether the global imbalances indeed pose a significant threat to the world economy. This matter is settled by arguing that the global imbalances acted as a handmaiden to the 2008 financial crisis. One way to reduce global imbalances is to reform the international monetary system and reduce the role of the US dollar as a reserve currency. Robert Triffin was one of those critical of this exorbitant privilege granted to the US, which makes it both a system maker and privilege taker. The Triffin Dilemma captures the fundamental instability that underlies the dollar reserve system. However, there are major obstacles to this proposal. Some analysts including Triffin cited the US security umbrella as the primary reason the US and its major allies would want to retain the role of the dollar in global trade and finance despite the underlying inequities in the system. This is related to the imbalance in global governance which is largely US-centric. The imbalance in global governance is also reflected in the dominance of the US financial system brought about by the first-mover advantage. Because of the inertia brought about by the imbalance in global governance, economic arguments to reform the international monetary system are likely to be trumped by political reality. The paper analyzes whether current efforts in East Asia in terms of financial and monetary cooperation and rebalancing of economic growth could significantly mitigate the adverse impacts of a global system that will still be dominated by the US dollar in the foreseeable future. It also explains why the People's Republic of China (PRC) is unlikely to make significant unilateral adjustments to reduce global macroeconomic imbalances

F. A. Hayek vs. J. M. Keynes in Shackle's marginal gloss

The intellectual rivalry of F.A. Hayek and J.M. Keynes has recently caught the attention of historians of economic thought, journalists and the broad public. However, how was it viewed at the time? This article uses archival material in the form of marginal annotations made by G.L.S. Shackle to determine contemporary reading responses to the theoretical developments of the 1930s. Shackle’s unique reading style that includes legible, dated, annotations and the fact that a substantial part of his academic library survives, gives us a unique vantage point from which to explore anew this period of intellectual history