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From the Gold Standard to a Bipolar Monetary System

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  • Michele Fratianni

    ()

  • Andreas Hauskrecht

    ()

Abstract

This paper argues that the international monetary system will evolve into a bipolar structure consisting of a dollar area and a euro area, each of which attracting other countries to their gravitational centers. A deepening and widening of NAFTA and the EU will enlarge the sphere of influence of both currencies; trade wars will restrict them. The yen is a big question mark. The deep and still unresolved financial crisis in Japan works against the enlargement of the yen; deregulation of its financial markets, with the attendant decline in transaction costs, goes in the opposite direction. Our conclusion is that the yen area will be much smaller than the dollar and the euro area and, consequently, the two large blocs will shape the international monetary system of the 21st century in a critical way. We also discuss feasible scenarios of interaction between currency blocs. A large EMU works in favor of cooperation because fewer players imply lower decision-making costs in reaching a cooperative solution. The relative closeness of the EMU and the United States, on the other hand, works against cooperation and in favor of benign neglect. Exchange-rate agreements are fragile unless supported by strong commitment to economic policy cooperation, and such a commitment may well be premature. The article advocates that the United States and EMU target common inflation rates, an idea that Keynes proposed back in 1923. Copyright Kluwer Academic Publishers 1998

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 9 (1998)
Issue (Month): 1 (January)
Pages: 609-636

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Handle: RePEc:kap:openec:v:9:y:1998:i:1:p:609-636

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: evolution of the international monetary system; currency blocs; hierarchical structure; hegemony; cooperation; inflation rate targeting;

References

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  1. Michael Bordo, 1993. "The Gold Standard, Bretton Woods and other Monetary Regimes: An Historical Appraisal," NBER Working Papers 4310, National Bureau of Economic Research, Inc.
  2. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839, April.
  3. Forrest Capie, 1998. "Monetary Unions in Historical Perspective: What Future for the Euro in the International Financial System," Open Economies Review, Springer, vol. 9(1), pages 447-466, January.
  4. Michele Fratianni & Andreas Hauskrecht & Aurelio Maccario, 1998. "Dominant Currencies and the Future of the Euro," Open Economies Review, Springer, vol. 9(1), pages 467-492, January.
  5. Marc Flandreau, 1997. "Central Bank Cooperation in Historical Perspective: A Sceptical View," Economic History Review, Economic History Society, vol. 50(4), pages 735-763, November.
  6. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 9-110.
  7. Koichi Hamada, 1998. "The Choice of International Monetary Regimes in a Context of Repeated Games," Open Economies Review, Springer, vol. 9(1), pages 417-446, January.
  8. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
  9. Laubach, T. & Posen, A.S., 1997. "Disciplined Discretion: Monetary Targeting in Germany and Switzerland," Princeton Essays in International Economics 206, International Economics Section, Departement of Economics Princeton University,.
  10. Michael D. Bordo, 1992. "The Bretton Woods International Monetary System: An Historical Overview," NBER Working Papers 4033, National Bureau of Economic Research, Inc.
  11. Fratianni, Michele & Pattison, John, 1982. "The Economics of International Organizations," Kyklos, Wiley Blackwell, vol. 35(2), pages 244-62.
  12. Artis, Michael J & Winkler, Bernhard, 1997. "The Stability Pact: Safeguarding the Credibility of the European Central Bank," CEPR Discussion Papers 1688, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Barry Eichengreen., 1997. "Exchange Rate Stability and Financial Stability," Center for International and Development Economics Research (CIDER) Working Papers C97-092, University of California at Berkeley.
  2. Wilhem Hankel & Andreas Hauskrecht & Bryan Stuart, 2010. "The Euro-Project at Risk," Working Papers 2010-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Michele Fratianni & Dominick Salvatore & Paolo Savona, 1998. "Ideas for the Future of the International Monetary System: Conclusions and Remarks," Open Economies Review, Springer, vol. 9(1), pages 689-700, January.
  4. Pietro Alessandrini & Michele Fratianni, 2007. "Resurrecting Keynes to Revamp the International Monetary System," Working Papers 2007-19, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Mo.Fi.R. Working Papers 26, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  6. Helmut Frisch, 2003. "The euro and its consequences: What makes a currency strong?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 31(1), pages 15-31, March.
  7. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
  8. Alberto Predieri, 1998. "Money Markets and Poliarchic Democratic States," Open Economies Review, Springer, vol. 9(1), pages 713-726, January.

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