Money without borders

Floating exchange rates, International Monetary Fund conditionality, support from the Asian and other development banks, are all essential to weakening economies that want to correct their balance of payments deficit. Cross-border intervention can be a threat to national sovereignty. Where the alternative is default on bonds and bankruptcy, it is the preferred alternative. The United States, although a deficit country, makes use of the ‘exorbitant privilege’ that the world uses dollars for exchange. The existing system is not without its flaws. Taken on its own merits, however, it does recall the high degree of stability of the pre-1914 world gold standard.