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A global currency for a global economy

  • BASIL J. MOORE

When using national currencies in international trade, both flexible and fixed exchange rate systems pose a number of problems. The most important is a large deflationary bias on the global economy, as deficit countries are forced to try to attain a positive current account balance to protect their exchange rate. The author advances a Post Keynesian policy proposal for a common global currency, where exchange rates vanish and countries no longer have an external balance constraint. In order to move toward a common world currency, two approaches are considered: a top-down approach, consisting of a global central bank (or a small number of competitive regional central banks), which is politically unfeasible, and a bottom-up approach, consisting of blocs of countries that chose to dollarize or euroize. The paper proposes a dollarization/euroization plan for the global economy. This would enable economies to pursue expansionary domestic policies since they would no longer face an external balance constraint.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 26 (2004)
Issue (Month): 4 (October)
Pages: 631-653

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Handle: RePEc:mes:postke:v:26:y:2004:i:4:p:631-653
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