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International Financial Instability in a World of Currencies Hierarchy

  • Andrea Terzi


    (DISCE, Università Cattolica)

The 1990s have witnessed an increase of international financial turbulence. Indeed, the frequency, the size, the geographic extension, and the social costs of financial crises have made the topic a global policy issue. An array of policy actions have been advocated to prevent crises from happening again. A major controversial question is whether efforts should be directed towards national reforms in emerging markets or, rather, towards a new international design of international payments. After a critical review of the standing proposals, this paper contends that this debate has not yet fully explored one of the problems of international instability, that is to say, the problem raised by international payments in a world of currencies of diverse quality. As Keynes firmly contended, the monetary side of the (global) economy is not a neutral factor. In fact, it may be the problems posed by the different degrees of “international moneyness” that make currencies unequal that should be considered as one of the fundamental factors behind any model of international financial instability. Viewed in this light, a major re-design of international payments systems is warranted, and options seem limited to either world dollarization or the ‘bancor’ solution. Recent reformulations of Keynes’s original ‘bancor’ proposal seem to be a more viable alternative to either the status quo or world dollarization.

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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0064.

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Length: 26 pages
Date of creation: Sep 2005
Date of revision:
Publication status: Published in Louis-Philippe Rochon and Sergio Rossi (eds.), Monetary and Exchange Rate Systems: A Global View of Financial Crises, Edward Elgar, 2006.
Handle: RePEc:ctc:serie3:ief0064
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  1. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  2. Philip Arestis & Santonu Basu & Sushanta Mallick, 2005. "Financial globalization: the need for a single currency and a global central bank," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 27(3), pages 507-531, April.
  3. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  4. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  5. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
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