The Evolving International Monetary System: Past Plans and Optimality

In the middle of 1960 the world of international finance was shaken by a momentous event which for most people today in retrospect is nothing but a minor incidence: wealthholders throughout the world were selling dollars and bought other currencies and assets. For the first time in nearly thirty years central banks had to purchase massive amounts of dollars. Almost simultaneously as these events were taking place in financial markets a book by Triffin (1960) appeared on the market in which he not only predicted this crisis but also diagnosed its causes and presented a remedy. In the following years many prominent economists and important policy-makers produced a plethora of reactions to the Triffin plan and alternative plans for reform of the international monetary system. In the first section below I present a brief anatomy of these plans, which were reprinted in my collection (Grubel, 1963), emphasizing that they were characterized by a remarkable absence of theoretical reasoning and of any kind of model of an efficient monetary system towards which reform plans could be directed. Similarly, the Bellagio Group (1964) publication and the studies of crawling pegs contained essentially pragmatic recommendations for changes to the existing system.