Sui Generis EMU

The thesis of this paper is that there is no historical precedent for Europe's monetary union (EMU). While it is possible to point to similar historical experiences, the most obvious of which were in the 19th century, occurred in Europe, and had “union†as part of their names, EMU differs from these earlier monetary unions. The closer one looks the more uncomfortable one becomes with the effort to draw parallels on the basis of historical experience. It is argued that efforts to draw parallels between EMU and monetary unions past are more likely to mislead than to offer useful insights. Where history is useful is not in drawing parallels but in pinpointing differences. It is useful for highlighting what is distinctive about EMU.EMU, Monetary union, Euro, Economic History, international monetary system, History of monetary unions, Eichengreen

The shift from sterling to the dollar 1965-76: evidence from Australia and New Zealand

The management of foreign exchange reserves has recently attracted attention from both policy-makers and historians. Historical research has focussed on the nineteenth century and the interwar period, with less attention to the strategies of smaller countries in the final transition from sterling to the dollar in the post-1945 period. This article examines the evolution of reserve currency policy from the perspective of Australia and New Zealand in the 1960s and early 1970s. As in the 1930s, economic uncertainty and a shift in global economic power prompted changes in reserves strategy. Patterns of trade and debt and falling confidence in British economic policy prompted a move away from sterling, but the timing and extent of this transition were affected by the fragility of the sterling exchange rate, lack of alternative assets, and continued dependence on the London capital market. The choices for Australia and New Zealand were thus constrained, but they were able to leverage their position as holders of sterling to engage in agreements that provided an exchange rate guarantee for their sterling holdings and continued access to the London capital market. This mitigated the effect of the final global transition from sterling to the dollar while protecting their interests

Realistic and romantic reforms of the international financial system : reform of the international architecture

Internationaler Finanzmarkt, Internationales Währungssystem, Welt, International financial market, International monetary system, World

The Great Recession and the Great Depression: Reflections and Lessons

The Great Recession that started in 2008 has drawn constant comparisons with the Great Depression that unfolded in 1929. This paper documents how the response of policy makers in the current episode has been markedly different from the one observed in the 1920s and 1930s and to what extent this different behavior has followed the lessons from the historical analysis of the Great Depression. The historical account is also used to discuss probable changes to the world’s economic landscape regarding both trade and financial globalization.

Ten questions about the subprime crisis.

The ongoing credit crunch represents the fi rst crisis of the age of mass securitization. One conclusion sometimes drawn is that the costs of securitization, in the form of risks to fi nancial stability, exceed the benefits. The implication is that we should return to the simpler days when commercial banks originate loans to households and fi rms and hold them on their balance sheets, rather than slicing them, dicing them and selling them off. But this back-to-the-future formula ignores economic realities. Securitization is bound up with the broader deregulation of fi nancial markets and with the information-technology revolution. Policy makers cannot eliminate this process short of reimposing the kind of restrictive regulation to which banking and fi nancial systems were subject half a century ago.liquidity lines provided by financial institutions. Market liquidity depends not only on objective, exogenous factors, but also on endogenous market dynamics. Central banks responsible for systemic stability need to consider how far their traditional responsibility for the health of the banking system needs to be adapted to promote stability in the relevant financial markets. In any case, turning back the clock would not be desirable because the constellation of financial innovations referred to as securitization has real benefits for the economy. Those innovations have allowed the financial system to repackage and spread risk. They have reduced the amount of equity capital that this system requires to absorb that risk. The result has been to lower funding costs for both fi rms and homeowners as a class. In the aftermath of the Great Securitization Crisis of 2007-8, would-be reformers will surely say that financial regulators need to rethink speed limits and rules of the road. In my view, policy makers should focus on the banking system. Banks still play a unique role. They are at the center of the information-impacted segments of the financial system. Their key role and their vulnerability are recognized by the protection they receive via the financial safety net. Re-thinking should start with the role of Basel II, and within Basel II of the role of internal models and bond ratings.

Should there be a coordinated response to the problem of global imbalances? Can there be one?

This paper analyzes the options for international policy coordination in order to redress the global imbalances. The case for policy coordination rests on a number of assumptions such as the existence of important spillover effects of national policies and a common understanding of the nature of the problem. In reality, important obstacles exist to get to effective policy coordination, including resistance from domestic interest groups and disagreement of the effectiveness of policy instruments. These obstacles can be reduced by developing a multilateral consensus on common goals and by addressing commitment problems via issuing multi-year schedules for policy adjustments.Global imbalances, international policy coordination, international financial architecture