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Unformatted text preview: Prolegomena to the Choice of an International Monetary System: Richard N. Cooper Introduction: International monetary system : rules and conventions that govern financial relations between countries Monetary relations should be inconspicuous, when they are visible something is wrong Principle message of this essay: sources of disagreement usually do not come from divergent interests, are usually from diverse perspectives about consequences of different monetary regimes: disagreement arise mainly from ignorance about the true effects Regime : any particular set of rules or conventions governing monetary and financial relations between countries (preferable to system or order ) Monetary regime : specifies which instruments of policy may be used and which targets of policy are regarded as legitimate Free-for-all regime: no rules or conventions: many problems associated with it: o Large nations attempt to exploit their power at expense of smaller nations o Individual nations pursue objectives not consistent with one another: leads to disorganization of markets Types of International Monetary Regimes: Three broad features of a monetary regime: (see headings in table) Possible monetary regimes: 45 monetary regimes possible (5x3x3): Roles of exchange rates in balance-of-payments adjustment Reserve asset Degree of market convertibility for capital movements I. Fixed exchange rate II. Adjustable parities III. Gliding parities IV. Managed float V. Free float A. Gold B. SDRs C. U.S. dollars and other national currencies 1. Full 2. Dual market 3. Controlled Not all countries follow the same conventions within a given international monetary regime and they do not need to: just need to meet certain consistency requirements What kind of regime you are examining is not enough to know how well it will work: is dependent on how countries behave within the rules and conventions Criteria for Choosing a Monetary Regime: Liberal Western traditions objective: well-being of individual members of society: o Economic dimension: individual has economic capacity to pursue his own aims o Social dimension: individual has liberty to pursue his own aims without unnecessary interference from other individuals or the state Not much dispute over the objective, just the means to obtaining it Four criteria for judging an international monetary system: o Economic efficiency: How effectively we use worlds human/natural resources Three broad categories of economic efficiency: Macroeconomic management: degree to which the international system facilitates or impeded the full employment of resources and the attainment of price stability Microeconomic efficiency in use of resources (especially how they are influenced by exchange rates that act as prices for guiding the allocation of resources) Prolegomena to the Choice of an International Monetary System: Richard N. Cooper Microeconomic efficiency in use of money as a lubricant for...
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- Spring '09