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Currency Areas, Volatility and Intervention

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  • Mundell, Robert

Abstract

On January 1, 1999, the euro was launched with eleven members and it instantly became the second most important currency in the world. It may prove to be the most important event in the history of the international monetary system since the dollar took over from sterling the role of dominant international currency. For the time being the mainstream of the world economy will be characterized by a tripolarism based on the dollar, euro and yen The new situation raises some old questions: Is the currency configuration of the world economy optimal? How many currencies does the world need? Which countries belong in a currency area? What is the optimum currency area? This paper will discuss the currency composition of the world economy today. It will discuss the prospects for expansion of the major currency areas and the problems arising from the volatility of exchange rates between them. It will argue that a restoration of a system of fixed exchange rates would have to begin with stabilization of the exchange rates between the dollar, euro and yen, and that a step in the right direction would be to evolve policies that provide for intervention in the foreign exchange market.

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File URL: http://www.sciencedirect.com/science/article/B6V82-40MT2DN-2/2/b957b9f36cb1a5e5b72d2eebcd569835
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 22 (2000)
Issue (Month): 3 (May)
Pages: 281-299

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Handle: RePEc:eee:jpolmo:v:22:y:2000:i:3:p:281-299

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Web page: http://www.elsevier.com/locate/inca/505735

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  1. Mundell, Robert A., 1995. "The international monetary system: The missing factor," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 479-492, October.
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Citations

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Cited by:
  1. Miguel Lebre de Freitas, 2006. "Eu-Wide Money And Currency Substitution," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 48-63, November.
  2. Michael Bordo & Harold James, 2008. "A Long Term Perspective on the Euro," European Economy - Economic Papers 307, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Frenkel, Michael & Pierdzioch, Christian & Stadtmann, Georg, 2006. "The transparency of the ECB policy: What can we learn from its foreign exchange market interventions?," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 141-156, February.
  4. Julda Kielyte, 2002. "Exchange rate arrangements in the run-up to the EMU: some experience in currency board countries," EERI Research Paper Series EERI_RP_2002_01, Economics and Econometrics Research Institute (EERI), Brussels.
  5. D. Mario Nuti, 2000. "The Costs and Benefits of Euro-sation in Central-Eastern Europe Before or Instead of EMU Membership," William Davidson Institute Working Papers Series 340, William Davidson Institute at the University of Michigan.
  6. Smimou, K., 2011. "Transition to the Euro and its impact on country portfolio diversification," Research in International Business and Finance, Elsevier, vol. 25(1), pages 88-103, January.

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