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Two Cases for Sand in the Wheels of International Finance

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  • Eichengreen, Barry
  • Tobin, James
  • Wyplosz, Charles

Abstract

The incompatibility of pegged exchange rates, international capital mobility and national monetary autonomy is a basic postulate of open economy macroeconomies. In the present environment of high capital mobility and political uncertainty, even the possibility that governments may utilize their policy autonomy can defeat efforts to peg the exchange rate. This leaves two possibilities. One is to fix the exchange rate irrevocably through monetary unification. The other is to live with floating rates. Either way, a case can be made for "throwing sand in the wheels" of international finance. Where monetary unification is not an option, this is a may to make distinct national currencies tolerable and international money and capital markets compatible with modest national autonomy in monetary and macroeconomic policy. For. EU counties striving to create a monetary union, it is the only politically and economically feasible way of completing the transition to Stage III of the Maastricht process.

Suggested Citation

  • Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers 233396, University of California-Berkeley, Department of Economics.
    • Handle: RePEc:ags:ucbewp:233396
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rates; monetary policy; capital controls; Financial Economics; F0; F3;

    JEL classification:

    • F0 - International Economics - - General
    • F3 - International Economics - - International Finance

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