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

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  • Jan Kregel

Abstract

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.

Suggested Citation

  • Jan Kregel, 2015. "Emerging Markets and the International Financial Architecture: A Blueprint for Reform," Economics Working Paper Archive wp_833, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_833
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    References listed on IDEAS

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    1. Armand Dormael, 1978. "The Bretton Woods Conference," Palgrave Macmillan Books, in: Bretton Woods, chapter 16, pages 168-223, Palgrave Macmillan.
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    Cited by:

    1. Jan Kregel, 2015. "Emerging Market Economies and the Reform of the International Financial Architecture: Back to the Future," Economics Public Policy Brief Archive ppb_139, Levy Economics Institute.
    2. Matthew Harrison & Geng Xiao, 2018. "Enhanced Special Drawing Rights: How China Could Contribute to a Reformed International Monetary Architecture," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 26(4), pages 41-61, July.
    3. Kregel, Jan (Крегель, Ян), 2018. "Minsky and International Development Finance [Теория Мински: Международное Финансирование Развивающихся Стран]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 8-19, August.
    4. Liudmila Malyshava, 2018. "External Instability in Transition: Applying Minsky's Theory of Financial Fragility to International Markets," Economics Working Paper Archive wp_909, Levy Economics Institute.

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      More about this item

      Keywords

      Banking Principle; Bretton Woods; Creditor Countries; Debtor Countries; Emerging Market Economies; Gold Standard; International Monetary Standard; Keynes; Reparations; Schacht; Triffin;
      All these keywords.

      JEL classification:

      • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
      • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
      • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
      • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-

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