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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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  • Michele Fratianni & Andreas Hauskrecht, 1998. "From the Gold Standard to a Bipolar Monetary System," Open Economies Review, Springer, vol. 9(1), pages 609-636, January.
    • Handle: RePEc:kap:openec:v:9:y:1998:i:1:p:609-636
    DOI: 10.1023/A:1008325106296
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    References listed on IDEAS

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    1. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
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    Cited by:

    1. Hajo Riese, 1999. "Japans Krise und der Dollar," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(1), pages 51-56.
    2. Helmut Frisch, 2003. "The euro and its consequences: What makes a currency strong?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(1), pages 15-31, March.
    3. Andreas Hausknecht, 1999. "Die asiatische Krise und der Internationale Währungsfonds," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(1), pages 118-125.
    4. 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.
    5. Hankel, Wilhelm & Hauskrecht, Andreas & Stuart, Bryan, 2010. "The Euro-project at risk," ZEI Working Papers B 04-2010, University of Bonn, ZEI - Center for European Integration Studies.
    6. Eun, Cheol S. & Kim, Soo-Hyun & Lee, Kyuseok, 2015. "Currency competition between the dollar and euro: Evidence from exchange rate behaviors," Finance Research Letters, Elsevier, vol. 12(C), pages 100-108.
    7. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
    8. 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.
    9. Lee, Kyuseok, 2018. "Systematic exchange rate variation: Where does the dollar factor come from?," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 288-307.
    10. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January.
    11. Alberto Predieri, 1998. "Money Markets and Poliarchic Democratic States," Open Economies Review, Springer, vol. 9(1), pages 713-726, January.
    12. 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.
    13. Soo-Hyun Kim & Kyuseok Lee, 2016. "The Influences of Major Currencies in Foreign Exchange Markets: A Regression-Based Measure and Its Application," International Review of Finance, International Review of Finance Ltd., vol. 16(2), pages 277-289, June.

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