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From the Gold Standard to a Bipolar Monetary System

  • Michele Fratianni


  • Andreas Hauskrecht


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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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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  1. Michael D. Bordo, 1993. "The Bretton Woods International Monetary System: A Historical Overview," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 3-108 National Bureau of Economic Research, Inc.
  2. 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.
  3. Fratianni, Michele & Pattison, John, 1982. "The Economics of International Organizations," Kyklos, Wiley Blackwell, vol. 35(2), pages 244-62.
  4. 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.
  5. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839.
  6. 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,.
  7. 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.
  8. 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.
  9. Marc Flandreau, 1997. "Central Bank Co-operation in Historical Perspective: a Sceptical View," Sciences Po publications info:hdl:2441/648, Sciences Po.
  10. 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.
  11. 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.
  12. 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.
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